ill 


E«on.  Dept.  Econ.  IA.   M^  T 


SPECULATION  AND  THE  CHICAGO 
BOARD   OF  TRADE 


THE  MACMILLAN  COMPANY 

NEW   YORK   •    BOSTON    •    CHICAGO    •    DALLAS 
ATLANTA    •    SAN   FRANCISCO 

MACMILLAN  &  CO.,  LIMITED 

LONDON    •    BOMBAY    •  CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  LTD. 

TORONTO 


SPECULATION 

AND  THE 

CHICAGO  BOARD  OF  TRADE 


BY 

JAMES  E.  BOYLE,  PH.  D. 

EXTENSION  PROFESSOR  OF  RURAL  ECONOMY,   COLLEGE 
OP  AGRICULTURE,   CORNELL  UNIVERSITY 


flnrk 

THE  MACMILLAN  COMPANY 
1920 

AH  rights  reserved 


- 

* 


COPYRIGHT,  1920 
BY  THE  MACMILLAN  COMPANY 

Set  up  and  electrotyped.    Published  July,  1920 


iicoii.  De.pi  Aiain  Librar, 


INTRODUCTORY 

Speculation  in  grain  and  future  trading  on  the  organized 
exchanges  are  fundamental  market  problems  which  interest 
every  citizen.  Unfortunately  these  questions  are  usually 
treated  in  a  controversial  manner,  the  discussions  generally 
producing  more  heat  than  light.  And  so  it  happens  that 
while  the  literature  in  this  field  is  abundant,  yet  most  of  it  is 
very  one-sided  and  partisan.  There  are  very  few  disinter- 
ested reports  explaining  the  important  terminal  market 
problems  of  the  grain  trade. 

This  book  is  really  a  " report"  on  the  Chicago  Board  of 
Trade,  and  particularly  on  the  two  big  problems  involved 
there,  namely,  future  trading  and  speculation.  I  have  en- 
deavored to  relate  these  two  practices  to  the  larger  problem 
of  marketing  the  grain  crop,  in  order  to  show  the  true  setting 
and  the  actual  significance  of  future  trading  and  speculation. 
In  this  way  only  can  the  economic  functions  of  these  two 
practices  be  rightly  understood. 

It  is  hardly  necessary  to  add  that  I  have  tried  to  make 
this  report  fair  and  candid.  I  have  written  this  book  for 
those  open-minded  readers  who  are  looking  for  a  disinter- 
ested treatment  of  the  subject.  The  reader  who  already 
"knows  it  all  "  or  whose  mind  is  finally  made  up  on  all  these 
controverted  points,  is  asked  to  close  the  book  at  this  point 
and  read  no  further. 

In  deference  to  the  tacit  demands  of  my  readers  to  know 
what  my  credentials  are  for  writing  this  report,  I  will  add 
a  brief  word  of  explanation.  The  first  twenty  years  of  my 

4342-97 


VI  INTKODUCTORY 

life  I  spent  on  a  Kansas  farm,  and  to  this  farm  I  have  made 
a  yearly  visit  during  the  past  twenty  years.  Hence  I  claim 
to  know  something  of  the  viewpoint  of  the  farmer  who  is 
growing  the  grain.  For  several  years  I  taught  the  subject  of 
grain  marketing  in  one  of  our  State  Universities,  and  so  be- 
came familiar  with  the  "  theory  "  and  with  the  literature  of 
marketing.  I  made  a  first-hand  study  of  the  country  eleva- 
tor business  and  of  the  various  terminal  market  problems, 
thus  getting  in  touch  with  the  ''practical  "  side  of  marketing. 
Over  two  years'  time  was  devoted  to  this  study.  Therefore, 
whatever  the  limitations  of  this  book  may  be,  whatever  its 
merits  or  defects,  it  is  the  product  of  several  years  of  study 
of  the  theory  and  practice  of  all  parts  of  the  grain  trade. 

JAMES  ERNEST  BOYLE. 
Ithaca,  N.  Y. 
November  12,  1919. 


TABLE  OF  CONTENTS 

CHAPTER   I 

PAGE 

FUNDAMENTAL  ECONOMIC  FUNCTIONS  OF  A  MARKET 1 

What  an  ideal  market  should  be  and  do — Contrast  between  ideal 
market  and  practical  market — Lack  of  coordination — Example 
from  Australia — Fundamental  function  of  a  market — The 
price  function — Problem  of  ''fair  price  " — The  grain  market  of 
Chicago — Registering  supply  and  demand — Fluctuations  in 
supply  and  demand — The  place  of  bargaining. 

CHAPTER   II 

CHICAGO  AS  A  GRAIN  MARKET 10 

Geographical  location  of  Chicago — Competing  grain  markets — 
The  flow  of  grain  to  Chicago  and  to  interior  markets — Increase 
in  competition  among  markets — Grain  area  tributary  to 
Chicago,  cash  and  futures. 

CHAPTER   III 

THE  CHICAGO  BOARD  OF  TRADE  VIEWED  AS  A  PIECE  OF  MAR- 
KETING MACHINERY  STRUCTURE  AND  ORGANIZATION 14 

A  corporation — Objects  of  the  Board  of  Trade — No  trading  by 
the  Board  itself — Membership,  number  and  classification — 
Farmers'  companies  have  memberships — Qualifications  of 
Members — Government  of  the  Board  of  Trade — 'Use  of  Ini- 
tiative and  Referendum — -Rules — Administrative  work — • 
Twelve  important  committees — Physical  equipment — Market 
information  instrument  alii  ie«. 

vii 


Vlll  TABLE    OF    CONTENTS 

CHAPTER  IV 

PAGE 

THE  CHICAGO  BOARD  OF  TRADE  VIEWED  AS  A  PIECE  OF  MARKET 
MACHINERY;  OPERATION  AND  FUNCTIONS:  SIXTY  YEAR 3  OP 

ACTIVITY 22 

A  continuous  market — A  picture  of  one  day's  trading — Cash 
grain,  to  arrive  grain,  and  grain  for  future  delivery — Selling 
from  official  samples:  commission  merchants — Hedging  and  *-" 
f  speculation — Professional  speculators,  pit  scalpers,  and  am- 
ateurs— Bears,  short  selling — Bulls,  long — Overbought,  over- 
sold, liquidated — Margins — One  day's  trades,  by  2595  persons, 
in  28  states — Over  half  the  future  trading  by  members  for 
themselves — Cost  of  future  trading  to  the  country — Selling 
cash  grain — Additional  services  of  the  commission  merchant — 
Grain  handled  on  low  margin  of  cost — Hedging  defined  and 
illustrated — Cost  of  hedging  and  influence  on  grain  handling — 
Evolution  of  the  Board  of  Trade:  (1)  Membership:  at  first, 
"members  and  strangers";  (2)  Weighing,  Inspecting,  Grad- 
ing; (3)  Cash  grain:  price  fixing  at  country  elevators,  origin 
and  growth  of  Farmers'  Elevators;  (4)  To  arrive  grain:  the  Call 
Rule;  (5)  Future  Trading:  before  the  Civil  War:  after  the  Civil 
War,  credit,  banking,  and  future  trading,  influence  of  future 
"  prices  on  cash  prices,  carrying  charge,  delivery  months;  (6) 
Corners:  days  of  many  corners,  reforms,  record  of  various 
corners,  Hutchinson  corner,  Leiter  corner,  Patten  corner: 
Steps  taken  to  prevent  corners,  shipping  grain  out  of  store, 
delivery  at  "fair  price,"  grades  deliverable  on  contract,  de- 
livery on  tract,  declaring  additional  warehouses  regular;  (7) 
Clearing  House  of  the  Board  of  Trade,  organization:  operation, 
ringing  out,  settling  by  offsets,  arguments  for  and  against 
present  clearing  system;  (8)  Option  trading:  puts  and  calls; 

(9)  The  Bucket  Shop  fight,  control  of  quotations,  definition  of 
bucket  shop,  interest  of  the  Board  in  bucket  shops,  Western 
Union  Telegraph  Company,  first  bucket  shop  in  the  year  1876, 
the  quotations  issue,  the  Cleveland  Telegraph  Company,  the 
Christie  case,  market  news  service  of  the  Board  at  present; 

(10)  Terminal  Elevators,  early  relations  with  railroads,  com- 
petition throttled,  clash  between  conflicting  interests  on  the 


TABLE    OF    CONTENTS  IX 

PAGE 

Board,  Illinois  law  of  1867,  regulation  resisted,  Illinois  Consti- 
tution of  1870,  Railroad  and  Warehouse  Act  of  1871,  inspec- 
tion, storage,  warehouse  receipts,  elevators  as  custodians  or 
merchants  of  grain,  Judge  Tuley's  warehouse  decision,  inves- 
tigation by  Interstate  Commerce  Commission,  Hiram  Sager, 
harmony  president  of  the  Board,  working  agreement  between 
Board  and  Elevators,  forcing  grain  into  store,  mixing  grain, 
significance  of  struggle  with  Terminal  Elevators;  (11)  Arbitra- 
tion of  business  disputes,  adjusted  out  of  court;  Summary  of 
Chapter. 

CHAPTER   V 

THE  CHICAGO  BOARD  OF  TRADE  AND  THE  PROBLEM  OF  SPECULA- 
TION      115 

Chicago  as  the  world's  speculative  grain  market — Comparison 
of  volume  of  futures  and  volume  of  cash  grain — Definition  of 
Speculation;  Contrasted  with  gambling — Speculation  in  cash 
grain  and  futures;  Organized  and  unorganized  speculation 
compared — Speculation  and  price  fluctuation;  Compare  price 
fluctuations  in  government  bonds;  speculation  lessens  fluctua- 
tions; Illustrations — Influence  of  speculation  in  raising  prices; 
in  lowering  prices — The  "phantom  wheat"  question — Exam- 
ination of  price  fluctuations,  comment  by  daily  press  market 
reporters,  comment  by  Charles  D.  Michaels,  Argentina,  a 
comparison — Corners,  artificial  and  natural,  an  ancient  prac-^ 
tice,  examples  from  history,  tobacco,  a  comparison,  relation  of 
organized  exchange  to  corners — Manipulation,  definition  and 
use,  relation  of  organized  exchange  to  manipulation — Increas- 
ing use  of  future  trading,  forward  contracts  used  before  ex- 
changes started,  use  of  futures  in  marketing  apples,  walnuts, 
prunes,  apricots,  etc.,  use  of  futures  in  various  industries,  fur- 
niture sales,  bakers  and  flour  millers,  futures  give  certainty  and 
stability — Hedging,  Insurance  and  Speculation,  importance 
of  modern  insurance,  fifty  common  forms  of  insurance,  use  of 
insurance  in  the  grain  trade,  by  the  American  Society  of  Equity, 
by  the  Saskatchewan  Cooperative  Elevator  Co.,  speculation 


TABLE     OF    CONTENTS 

PAUK 

and  the  hay  crop,  a  comparison,  Hartford,  South  Dakota, 
farmers'  elevator,  hedging  reduces  margin  of  cost — Wide  mar- 
ket needed  for  hedging,  illustration  of  narrow  market,  relation 
of  hedging  to  speculation;  limiting  speculation  to  grain  dealers; 
Hedging  in  North  and  South,  a  comparison — Summary  of 
benefits  of  organized  speculation;  stabilizes  price;  registers 
prices;  wide  continuous  market:  shifting  of  risk;  enemy  of 
monopoly:  stability  of  values — Prohibiting  speculation — • 
Germany's  experience;  law  of  1896:  futures  in  grain  prohibited; 
effects  on  the  German  farmer;  future  trading  in  grain  re- 
established four  years  later — Speculation  a  social  question; 
speculation  in  grain  one  aspect  of  larger  question,  the  problem 
of  "unwise  investments,"  " Educated  gullibility,"  Mark 
Twain,  Walter  Scott,  Wm.  E.  Gladstone,  U.  S.  Grant,  land 
speculation,  George  Washington,  a  successful  speculator, 
business  ventures  as  "adventures" — Evils  of  Speculation, 
use  and  abuse  of  speculation,  two.  kinds  of  speculation,  specula- 
tors, fit  and  unfit,  relation  of  Board  of  Trade  to  unfit  specula- 
tors— Constructive  Reforms:  general  reforms;  program  of 
reform;  education;  government  supervision  and  inspection; 
reforms  by  the  Directors  of  the  Board  of  Trade;  power  of  the 
Board  of  Trade  to  reform  abuses  from  within — Summary  on 
speculation;  abuse  of  speculation  is  local,  temporary,  incidental; 
use  of  speculation  wisely  is  general  practice  of  exchanges. 


LIST  OF  APPENDICES 

1.  World's  Wheat  Harvest 209 

2.  Wheat  production  and  Farm  Value  for  50  years 211 

3.  Wheat  prices  on  Chicago  Board  of  Trade,  10  normal  years .  .  .  212 

4.  List  of  flour  mills 215 

5.  Relation  between  future  price  and  cash  price 215 

6.  List  of  Private  Wire  houses 217 

7.  Wheat  price  fluctuations  for  100  years  (60  years  before  estab- 

lishment of  Board  of  Trade,  and  40  years  under  Board  of 
Trade  influences) 219 

8.  Grain  Storage  in  Chicago 220 

9.  Price  fluctuations  and  the  "horse  disease  "  of  1872 222 

10.  Closing  prices  of  cash  corn,  Chicago,  1919 223 

11.  Market  News  Restrictions,  Chicago  Board  of  Trade 225 

12.  Regulations  of  Crop  Reporting  Methods,  Chicago  Board  of 

Trade 226 

13.  Regulation  of  Future  Trading,  Chicago  Board  of  Trade 227 

14.  Restrictions  on  Future  Trading,  Chicago  Board  of  Trade 228 

15.  Executing  Trades  in  the  open  market 230 

16.  Settlement  of  contracts  (story  of  credit  money) 231 

17.  Prices  of  Wheat  to  Producers  in  Kansas 232 

18.  The  Mixing  Problem — in  Grain  and  in  Butter 235 

19.  Threatened  Corner  in  Malaga  Grapes 237 

20.  Life  of  a  car  of  grain  shipped  by  country  dealer  to  Chicago 

Grain   Commission    Merchant,    showing   trade    documents 
used 238 

21.  An  Argentina  Need 264 

22.  Reference  Library  for  a  Board  of  Trade 265 

Index.  .  .271 


SPECULATION   AND  THE  CHICAGO 
BOARD  OF  TRADE 


SPECULATION  AND  THE  CHICAGO 
BOARD  OF  TRADE 

I 

FUNDAMENTAL  ECONOMIC  FUNCTIONS 
OF  A  MARKET 

The  marketing  of  grain  has  been  considered,  in  all  coun- 
tries and  in  all  times,  as  a  matter  of  grave  public  concern. 
And  in  our  modern  times,  the  great  central  grain  markets 
have  reached  an  importance  in  the  distribution  of  food  sup- 
plies never  attained  before. 

Before  passing  an  intelligent  judgment  on  the  virtues  and 
shortcomings  of  that  particular  grain  market  known  as  the 
Chicago  Board  of  Trade,  it  is  first  necessary  to  form  a  stand- 
ard of  judgment  as  to  what  a  market  should  be  and  should  do. 
An  ideal  wheat  market,  for  instance,  would  exist  if  exactly 
one  fifty-second  part  of  the  world's  wheat  crop  were  har- 
vested each  week  and  if  exactly  one  fifty-second  part  were 
marketed  each  week  and  consumed  each  week,  and  if  the 
quality  and  quantity  were  always  the  same,  the  quantity 
merely  increasing  slowly  and  gradually  to  keep  pace  with 
increasing  population,  and  if  the  price  remained  the  same, 
and  if  every  buyer  of  wheat  and  flour  and  bread  paid  cash. 
There  would  then  be  no  credit  problem,  no  storage  problem, 
no  grading  problem,  and,  most  significant  of  all,  no  price 
problem.  But  contrast  this  ideally  simple  wheat-market 
problem  with  actual  conditions. 

l 


2          SPECULATION   AND  'TttE    CHICAGO    BOARD    OF   TRADE 

The  first  Impressive  "fact*  to  come  to  our  notice  is  the 
lack  of  coordination  between  production  and  consumption 
as  to  the  amount  of  wheat  produced.  Those  peoples  of  the 
earth  who  eat  the  wheaten  loaf — and  supposedly  pray  for 
their  "daily  bread" — actually  need  about  three  and  a  half 
billion  bushels  of  wheat  per  year.  And,  oddly  enough,  this 
was  the  crop  actually  produced  in  1914.  The  year  before 
and  the  year  after,  however,  the  crop  was  half  a  billion 
bushels  in  excess  of  that  amount.  And  in  the  year  1916  the 
crop  fell  a  billion  bushels  short  of  the  1915  crop.  These 
years  are  typical  of  the  wide  range  in  crop  yields.  Insect 
enemies,  such  as  the  green  bug,  may  work  unexpected  dam- 
age to  a  promising  crop.  So  also  may  early  frosts,  drouth, 
hail,  wet  weather  before  harvest  time,  or  wet  weather  during 
or  after  harvest,  or  red  rust  or  black  rust.  Truly,  the  amount 
of  good  wheat  harvested  and  marketed  any  year  is  very 
uncertain,  depending  as  it  does  on  many  factors  beyond  the 
control  of  man. 

Again,  there  is  lack  of  coordination  of  production  and 
consumption  as  to  the  time  of  production,  of  harvesting  and 
marketing.  While  the  world's  wheat  harvest  is  going  on 
every  week  in  the  year — as  a  glance  at  the  Table  in  Appen- 
dix 1  so  interestingly  shows — yet  the  bulk  of  the  crop  is 
actually  harvested  during  the  four  months  of  July,  August, 
September  and  October.  And  in  the  United  States,  which  is 
one  of  the  six  great  wheat  exporting  countries,  over  half  the 
wheat  crop  is  marketed  within  four  months  following  the 
harvest. 

The  world's  supply  of  wheat,  in  brief,  is  not  produced 
when  needed,  where  needed,  and  in  the  quantity  needed. 
This  makes  the  "  Supply"  side  of  the  market  very  uncertain 
and  very  fluctuating.  And  the  "  Demand  "  side  is  subject  to 


FUNDAMENTAL   ECONOMIC    FUNCTIONS   OF   A   MARKET        3 

unforeseen  and  unpredictable  influences.  A  large  crop  of 
rye  of  good  quality,  for  instance,  in  Germany  or  Russia — 
where  rye  bread  is  common — may  increase  the  consumption 
of  rye  and  decrease,  proportionately,  the  demand  for  wheat. 
A  failure  of  the  corn  crop  may  shift  the  demand  to  wheat 
products  for  feeding  purposes,  or  conversely,  a  plentiful  crop 
of  corn,  oats,  alfalfa  and  of  cotton  seed  may  lessen  the  de- 
mand for  bran  and  flour  mill  offal  for  stockfeeding  purposes. 
A  government  attack  on  the  high  cost  of  living,  or  a  state- 
ment from  some  prominent  man  that  bread  is  too  dear,  may 
cause  a  big  slump  in  the  demand  for  wheat.* 

The  stubborn,  underlying  condition  of  the  market  of  agri- 
cultural products  is  shown  by  the  above  facts  to  be  the  lack 
of  coordination  of  production  and  consumption. 

The  fundamental  problem  of  the  market  is,  therefore,  to 
move  the  whole  crop  into  consumption  without  a  loss,  with- 
out a  shortage,  and  without  a  carryover.  And  price  is  the 
instrument  through  which  the  market  does  this,  or  should  do 

*  For  a  curious  example  of  how  unforeseen  events  may  affect  the 
market,  see  Appendix  9.  The  following  facts  concerning  the  Australian 
wheat  crops  of  1917-18  and  1918-19  are  significant: 

Grain  Area,  acres  Yield,  bushels 

1917-18  1918-19  1917-18  1918-19 

9,774,658  8,003,361  114,733,584  76,125,879 

"Thus  the  area  harvested  for  grain  appears  to  have  been  16  per  cent 
less  than  in  1917-18,  and  the  decrease  in  yield  equal  to  no  less  than  33 
per  cent.  The  small  yield  to  the  acre  is  principally  caused  by  the  ad- 
verse character  of  the  season.  The  reasons  for  the  decrease  in  area  are: 
Shortage  and  unreliability  of  labor;  high  cost  of  production,  slow 
financial  settlements  by  the  pools,  and  the  fact  that  stock  raising  is 
often  thought  to  be  more  profitable  than  wheat  growing." 

(Vice  Consul  W.  J.  McCafferty,  Melbourne,  July  17,  1919.  Com- 
merce Reports,  1919,  No.  214.) 


4    SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

this.  If  the  market  is  a  free,  open,  and  competitive  market, 
it  makes  the  automatic  adjustment  of  production  to  con- 
sumption. The  high  price  (following  a  short  crop)  curtails 
consumption  and  stimulates  production.  The  low  price 
(following  a  large  crop)  increases  consumption  and  curtails 
production.  Thus  the  cure  for  high  prices  is  high  prices. 
The  cure  for  low  prices  is  low  prices.  Thus,  in  the  open 
competitive  market,  a  constant  adjustment  is  made,  coordi- 
nating consumption  to  production,  on  the  basis  of  facts  and 
not  theories.* 

Price  Function. — It  follows  from  what  has  been  said 
above  that  the  function  of  the  market  is  to  fix  that  price 
which  will  cobijdinate  production  and  consumption.  Such  a 
price  is  sometimes  called  an  equilibrium  price  or  a  fair  price. 

*  No  matter  how  careful  a  market  expert  may  be  in  compiling  statis- 
tics from  all  known  sources  in  order  to  form  a  correct  theory  of  market 
p'riee,  yet  some  omitted  factors  may  emerge  to  bring  those  prices  out 
of  line  with  his  theory  and  in  line  with  the  facts.  An  excellent  example 
of  this  is  seen  in  the  case  of  the  United  States  Food  Administration 
during  the  years  1917  and  1918.  Mr.  Herbert  Hoover,  in  charge  of 
this  gigantic  task,  was  usually  able  to  rely  upon  statistical  information, 
secured  by  his  experts,  as  to  supply  and  demand  matters.  In  one  con- 
spicuous case,  however,  he  found  himself  in  error,  despite  the  wide 
range  of  his  information.  The  price  of  hogs  in  1917  had  been  set  at 
$17.50.  Farmers  had  been  induced  to  increase  their  hog  crop  very 
greatly.  The  conclusion  was  reached,  about  the  end  of  the  year,  to 
remove  this  government  price.  We  have  the  testimony  of  Mr.  Mark 
Sullivan  (Collier's  Weekly,  August  16,  1919)  that  at  this  juncture  Mr. 
Hoover  was  greatly  perturbed  over  breaking  faith  with  the  farmer, 
fearing  that  the  removal  of  the  government  price  would  be  followed 
by  a  slump  in  price.  Exactly  the  opposite  thing  happened.  The  price 
rose  to  new  records  and  for  many  months  remained  high.  The 
"bumper"  corn  crop  of  1917,  claimed  by  the  Government  Crop  Report, 
proved  in  fact  to  be  so  poor  and  so  largely  wet  and  unmerchantable 
that  there  was,  in  reality,  a  very  short  corn  crop. 


FUNDAMENTAL    ECONOMIC    FUNCTIONS    OF   A    MARKET        5 

It  takes  into  consideration  not  merely  supply,  with  its  under- 
lying cost  of  production,  but  also  demand,  which  cannot  be 
ignored  in  price  matters.  That  cost  of  production  alone  is 
not  a  proper  basis  for  fair  price  is  evidenced  by  the  fact  that 
no  two  farmers  have  the  same  cost  of  production,  and  no  one 
farmer  has  the  same  cost  of  production  from  year  to  year, 
and  that  the  inefficient,  high-cost  farmer,  like  the  inefficient, 
high-cost  manufacturer  fails  and  quits  because  he  cannot 
force  the  consumer  to  pay  the  high  price  represented  by  his 
high  cost  of  production.  The  equilibrium  price  pays  the 
cost  of  production  of  that  supply  which  the  consumer  stands 
ready  to  take  at  this  price.  If  more  than  this  is  produced, 
the  consumer  can  be  induced  to  take  it  only  by  lowering  the 
price,  so  that  doubtless  some  portion  of  the  supply  is  sold 
below  the  cost  of  production.  That  is,  the  so-called  "  mar- 
ginal farmer  "  loses  money  on  his  crop  this  year,  and  puts  his 
land  in  something  else  next  year,  unless  he  be  following  a 
fixed  rotation  scheme.  Thus,  in  fact  we  do  have  an  annual 
fluctuation  in  wheat  acreage,  corn  acreage,  and  other  crop 
acreage.  Conversely,  it  is  true  also  that  if  less  than  the 
supply  is  produced,  which  the  consumer  wants  at  the  equilib- 
rium price,  the  strengthened  demand  shows  itself  in  higher 
price.  Then  the  marginal  farmer,  the  one  on  the  ragged 
edge,  finds  his  crop  selling  at  a  profit  and  he  will  feel  like 
trying  the  same  crop  another  year — unless  he  has  a  rotation 
program. 

This  discussion  of  price  theory  is  given  to  remind  the 
farmer  that  as  a  producer  he  is  entitled  to  "cost  of  produc- 
tion plus  a  profit "  only  so  far  as  the  consumer  is  able  anc 
willing  to  use  the  goods  at  that  price.  In  the  end  the  con- 
sumer is,  and  ought  to  be,  the  power  that  directs  ultimate 
production.  For  surely  the  purpose  of  production  is  con- 


O          SPECULATION   AND   THE    CHICAGO    BOARD    OF   TRADE 

sumption.  That  the  producers  are  beginning  to  understand 
the  psychology  of  this  situation  is  illustrated  by  the  action 
of  the  organized  livestock  producers,  and  other  producers, 
in  running  paid  advertisements  for  the  purpose  of  "  educat- 
ing the  consumer"  and  " stimulating  demand"  for  their 
various  food  products.  The  only  "fair  price"  then,  is  the 
equilibrium  price  which  coordinates  production  and  con- 
sumption. This  is  the  price  which  moves  the  whole  crop 
into  consumption,  without  a  shortage,  and  without  a  carry- 
over.* 

*  The  statement  has  gained  much  currency  that  the  farmer  is  the 
only  person  who  has  no  voice  in  fixing  the  price  of  his  product.  The 
manufacturer,  according  to  this  view,  puts  the  price  on  his  product. 
This  is  true — with  certain  very  important  limitations.  Most  manu- 
facturers face  competition.  All  manufacturers  face  the  consumer.  The 
manufacturer  sets  his  price,  let  us  say,  at  the  outset.  Then  what 
happens?  If  he  has  competition,  he  must  set  his  price  not  too  far  above 
his  competitor.  Suppose  the  consumers  fail  to  buy  his  whole  output 
at  this  set  price?  He  has  various  alternatives:  (1)  lower  his  cost  of  pro- 
duction and  lower  his  price;  (2)  stimulate  consumption  by  advertising 
and  selling  campaigns;  (3)  improve  his  product;  (4)  quit  business.  A 
very  large  per  cent  of  all  manufacturers  do,  sooner  or  later,  fail  and 
quit  business,  because  the  consumer  refuses  to  buy  any  volume  of  the 
output  at  the  price  " fixed"  by  the  manufacturer.  Every  village  of  any 
size  can  boast  of  one  or  more  of  such  failed  factories.  If  the  manufac- 
turer have  no  competition,  he  is  likewise  forced  to  conform  in  the  end 
to  the  consumer's  demand.  In  reality,  then,  it  is  only  superficially  true 
that  manufacturers  "fix  their  own  price"  and  hold  the  consumers  to 
those  prices.  Similarly,  we  may  say  the  merchants  in  the  retail  stores 
fix  their  own  prices — with  certain  very  important  limitations.  Goods 
accumulate  on  their  shelves,  dead  goods,  not  movable  at  the  "fixed 
price."  Annual  and  semi-annual  clearance  sales,  at  cut  prices,  may 
move  these  into  consumption.  A  very  large  per  cent  of  the  merchants 
fail,  because  their  "fixed  "  prices  failed  to  move  a  big  enough  volume  of 
goods  into  consumption.  Fixing  a  price,  by  ignoring  the  consumer,  is 
merely  naming  a  price  that  won't  stay  fixed.  The  colossal  and  over- 


FUNDAMENTAL    ECONOMIC    FUNCTIONS    OF    A    MARKET        7 

By  the  test  of  the  economic  function  of  a  market  we  must 
judge  the  grain  market  in  general,  and  in  particular  that 
part  of  the  grain  market  known  as  the  Chicago  Board  of 
Trade. 

A  careful  study  of  the  figures  published  by  the  United 
States  Department  of  Agriculture  giving  the  annual  wheat 
production  and  the  average  farm  price  of  wheat  for  the  past 
fifty  years  shows  clearly  that  the  average  price  does  actually 
fluctuate  with  the  total  supply  of  wheat.  These  figures  are 
proof  of  the  fundamental  market  truth  that  supply  and  de- 
mand govern  prices  in  a  broad  and  general  way.  Such 
figures,  however,  deal  only  with  averages  and  for  the  whole 
United  States,  and  must  be  construed  with  these  limita- 
tions. They  have  value  only  for  the  big  annual  market 
movements. 

A  more  specific  test  must  be  applied  to  the  Chicago  mar- 
ket, taking  into  consideration  not  merely  the  supply  (which 
does  not  fluctuate  sharply  from  day  to  day)  but  also  the 
demand  (which  does  fluctuate  sharply  every  hour  of  every 
day).  Select  for  this  purpose  ten  normal  years— free  from 
war — and  what  are  the  results?  The  important  factors  on 
the  supply  side  which  affect  the  market  day  by  day  are  these : 
arrivals  on  the  markets;  United  States  Visible  Supply; 
United  States  Crop,  as  estimated  by  the  United  States 
Department  of  Agriculture,  and  by  private  crop  reporting 
agencies,  such  as  Snow,  Inglis,  Goodman,  the  railroads  and 
the  industrial  corporations;  the  world  wheat  crop  as  reported 
by  Broomnall  of  Liverpool,  by  the  International  Institute  of 
Agriculture  at  Rome,  and  by  other  agencies,  official  and  pri- 
vate. The  demand  side  of  the  market  consists  of  buying 

whelming  growth  of  advertising  in  recent  years  shows  the  determina- 
tion in  the  mind  of  sellers  to  control  the  consumer  by  "educating  "  him. 


8    SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

orders,  and  is  therefore  influenced  by  such  factors  as  strikes, 
riots,  panics,  food  boycotts,  popular  campaigns  against  the 
high  cost  of  living,  important  pronouncements  by  high 
public  officials,  important  lawsuits  (particularly  against 
farmers'  organizations),  embargoes  by  railroads,  car  short- 
ages, shortage  of  ships,  drouth,  failures  of  certain  crops,  etc. 
The  demand  side  is  the  sensitive  side  of  the  market,  showing 
the  consumer's  ultimate  force  in  directing  what  shall  be  pro- 
duced by  deciding  what  shall  be  consumed.  Applying  this 
test  of  supply  and  demand  to  the  Board  of  Trade  wheat 
prices  for  the  ten  normal  years,  1905-1914,  we  find  that  the 
daily  prices  do  fluctuate  in  accordance  with  supply  and  de- 
mand factors.  The  figures  on  which  this  conclusion  is  based 
are  given  in  Appendix  2  and  3. 

It  is  fair  to  conclude,  therefore,  that  the  fundamental 
economic  functions  of  a  market  are  performed  by  the  Board 
of  Trade  of  the  City  of  Chicago. 

In  speaking  of  supply  and  demand,  some  writers  seem  to 
take  the  stand  that  supply  is  an  impersonal  factor  while  de- 
mand is  the  personal,  human  factor.  But  the  word  "  sup- 
ply," in  grain  market  language,  must  refer  to  the  buyer's 
and  seller's  estimate  or  opinion  of  supply,  and  hence  is,  like 
demand,  a  personal,  human  factor.  For  surely  no  one  ever 
knows  exactly  what  the  merchantable  supply  of  grain  is. 
Each  dealer  must  keep  revising  his  own  opinions  from  day  to 
day.  This  brings  us  to  a  very  important  limitation  of  the 
law  of  supply  and  demand.  Within  broad  limits  "  supply 
and  demand"  do  fix  market  price.  But,  the  actual  price  at 
which  the  trade  is  made  may  be  called  the  "bargain  price." 
To  use  a  figure  of  speech  from  the  prize  fighters'  ring,  supply 
and  demand  work  out  a  circle:  within  this  circle  the  buyer 
and  seller  contend  for  advantage  and  by  their  bargaining 
arrive  at  a  price.  The  strength  or  weakness  of  the  buyer  or 


FUNDAMENTAL    ECONOMIC    FUNCTIONS    OF   A    MARKET        9 

of  the  seller  thus  enters  into  all  price  making.  This  fact  has 
caused  some  very  respectable  thinkers  to  reject  the  whole 
law  of  supply  and  demand  as  inoperative.  It  is  always 
operative,  but  it  operates  through  human  agents,  some  of 
whom  are  weak  and  some  of  whom  are  powerful.  But  should 
price  fixing  be  attempted  by  government  commission,  the 
law  of  supply  and  demand  would  necessarily  be  followed  as 
closely  as  possible,  unless  the  -consumers  should  be  rationed. 
And  to  ration  consumers  in  peace  times  would  be  a  tacit 
recognition  of  the  law  of  supply  and  demand.  A  price  that 
is  too  low  does  not  maintain  production;  a  price  too  high 
does  not  maintain  consumption. 

What  the  cost  of  this  Chicago  market  is  to  the  public,  as 
compared  with  the  service  it  renders,  what  its  mechanism  is 
for  functioning  as  a  world  market,  and  how  its  various 
problems  of  future  trading,  hedging,  and  speculation  are 
actually  being  met,  must  be  deferred  for  discussion  to  the 
subsequent  chapters  in  this  report. 


II 

CHICAGO  AS  A  GRAIN  MARKET 

The  geographical  location  of  Chicago  made  of  the  city 
a  great  grain  market.  Here  is  the  greatest  railroad  center 
in  the  world.  Here  is  the  head  of  the  Great  Lakes.  And 
tributary  to  this  city  is  an  empire  of  the  world's  best  agri- 
cultural lands.  About  400,000,000  bushels  of  grain  are  re- 
ceived at  Chicago  each  year. 

It  was  due  to  natural  economic  evolution  that  here,  the 
great  grain  warehouses  were  built,  and  that  here  should  grow 
up  the  world's  greatest  cash  grain  market. 

However,  with  the  settling  up  of  the  agricultural  empire 
adjacent  to  Chicago  there  grew  up  a  number  of  powerful, 
competing  markets,  the  chief  of  which  are  in  the  order  of 
their  importance,  Minneapolis,  Duluth,  St.  Louis,  Kansas 
City,  Milwaukee,  Omaha,  Peoria,  Toledo  and  Detroit.  The 
primacy  in  wheat,  barley  and  rye  passed  to  Minneapolis. 
However,  the  primacy  in  corn  and  oats  remained  with  Chi- 
cago and  the  receipts  of  grain  at  Chicago  are  still  double 
those  of  her  nearest  rival.  Along  with  these  large  central, 
competing  markets  there  grew  up  a  large  number  of  so- 
called  interior  markets,  as  is  witnessed  by  the  number  of 
grain  exchanges  formed  in  recent  years  in  these  points.  A 
partial  list  of  these  exchanges  includes  the  following:  Indian- 
apolis Board  of  Trade,  Little  Rock  Board  of  Trade,  St. 
Joseph  Grain  Exchange,  Atchison  Board  of  Trade,  Fort 
Worth  Grain  and  Cotton  Exchange,  Louisville  Board  of 

10 


CHICAGO    AS   A    GRAIN   MARKET  11 

^Jrade,  Memphis  Merchants'  Exchange,  Topeka  Board  of 
Trade,  Wichita  Board  of  Trade,  Salina  Board  of  Trade, 
Hutchinson  Board  of  Trade,  Oklahoma  City  Board  of  Trade, 
Enid  Board  of  Trade,  Houston  Grain  and  Hay  Exchange, 
Denver  Grain  Exchange,  Sioux  City  Grain  Exchange,  Su- 
perior (Nebraska)  Board  of  Trade,  Des  Moines  Board  of 
Trade,  Cairo  Board  of  Trade. 

The  growth  of  interior  flour  mills  in  this  same  territory, 
has  tended  to  check  the  flow  of  cash  grain  to  the  terminals. 
For  instance,  using  the  figures  of  the  United  States  Census 
for  1909,  we  find  that  in  the  Chicago  territory,  there  were 
then  2828  flour  mills  of  an  annual  capacity  of  over  1000 
barrels  each,  and  actually  grinding  315,000,000  bushels  of 
wheat  a  year.*  The  State  of  Kansas  alone,  at  that  time,  was 
grinding  about  50,000,000  bushels  of  wheat  a  year,  and  since 
that  date  many  new  flour  mills  have  been  constructed  in 
that  State.  Developments  like  this  affect  the  trade  in  both 
cash  grain  and  future  grain  on  the  Chicago  market,  as  will  be 
presently  explained. 

The  increase  in  the  feeding  of  livestock  for  the  packing 
industry  and  the  development  of  the  manufacture  of  various 
kinds  of  cereal  breakfast  foods,  of  corn  products,  of  livestock 
feeds,  etc.,  have  also  tended  to  check  the  flow  of  grain  to  the 
larger  terminals,  and  to  promote  the  business  of  the  small 
interior  markets 

To  illustrate  in  a  concrete  manner  how  this  competition 
among  markets  works,  consider  the  following  typical  causes: 

(1)  A  farmers'  elevator  in  northern  Iowa  has  a  prosperous 
year's  business,  shipping  out  the  almost  unprecedented  vol- 
ume of  one  million  bushels  of  grain.  In  the  spring,  it  devel- 
ops that  too  much  corn  has  been  shipped  out,  and  some 
*  See  Appendix  4. 


12   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

large  livestock  feeder  must  buy  corn.  This  farmer  goes  to 
his  local  elevator.  This  elevator  manager  has  a  daily  price 
card  from  Minneapolis,  from  Chicago  and  likely  from  Peoria 
and  other  points.  He  knows  what  these  markets  are  bidding 
for  corn,  also  at  what  price  they  offer  corn.  This  manager 
may  turn  to  his  telephone,  call  up  a  car  lot  grain  dealer  in 
Sioux  City  and  ask  for  his  price  on  corn.  The  Sioux  City 
dealer,  being  in  touch  with  country  elevators  in  four  States, 
and  with  a  branch  office  in  Omaha,  is  able  to  buy  the  grain 
direct  from  a  country  elevator  and  turn  it  over  to  the  Iowa 
manager  at  a  profit  of  a  half  cent  a  bushel.  And  hence  the 
corn  is  bought  through  the  Sioux  City  dealer.  And  there  are 
hundreds  of  dealers  of  this  kind,  in  the  interior  markets,  in 
direct,  daily  competition  with  Chicago  and  other  terminal 
markets.  To  attract  the  grain  to  Chicago  the  price  must  be 
large  enough,  evidently,  to  make  it  to  the  interest  of  the 
country  elevator  to  ship  to  that  market. 

(2)  A  dealer  in  poultry  feeds  in  Petaluma,  California, 
wires  his  Denver  grain  dealer  for  a  car  of  corn.    This  dealer 
wires  a  country  elevator  in  Nebraska  or  Iowa  for  the  corn, 
or,  indeed,  may  wire  an  Omaha  or  Sioux  City  or  Cedar 
Rapids  dealer,  who,  in  turn,  gets  in  touch  with  the  country 
house.     In  this  way  the  corn  is  attracted  to  that  market 
where  the  demand  (the  price)  is  the  strongest. 

(3)  In  the  same  way  New  England  and  the  South — great 
consuming  markets — are  bidding  for  grain,  in  part  through 
the  large  terminal  dealers,  in  part  direct  to  the  countiy 
elevators  through  grain  brokers  and  grain  dealers  of  various 
kinds.    The  grain  trade,  as  now  conducted,  it  may  be  men- 
tioned in  passing,  is  carried  on  by  many  small,  competing 
middlemen,  with  a  small  profit  taken  by  each  middleman, 
rather  than  by  a  few  very  powerful  middlemen  with  a  big 


CHICAGO    AS   A    GRAIN   MARKET  13 

profit  by  each.     This  is  the  country  shipper's  guaranty  of 
getting  full  market  price. 

With  the  increase  in  the  number  of  primary  and  secondary 
grain  markets,  and  with  the  growth  of  local  grain  consuming 
industries  at  interior  points,  the  tendency  is  to  lessen  the 
area  from  which  Chicago  draws  cash  grain  and  to  increase 
the  area  for  which  Chicago  is  a  market  for  future  trading  in 
grain,  both  for  hedging  and  for  speculative  purposes.  A 
discussion  of  this  point  must  be  deferred,  however,  till  we 
reach  the  subject  of  future  trading  in  Part  IV  of  this  report. 


Ill 

THE  CHICAGO  BOARD  OF  TRADE 

VIEWED  AS  A  PIECE  OF  MARKET  MACHINERY: 
STRUCTURE  AND  ORGANIZATION 

A  Corporation. — The  Chicago  Board  of  Trade,  like  all  the 
other  important  grain  exchanges,  is  a  corporation.  It 
was  incorporated  under  a  special  act  of  the  Illinois  Legis- 
lature passed  February  18,  1859.  This  act  incorporated 
the  then  existing  Board  of  Trade,  which  had  had  its  early 
beginning  in  1848  as  a  voluntary  association.  It  was  not 
till  1856,  however,  that  the  trade  in  grain  was  important 
enough  to  make  the  Board  of  Trade  a  real  Grain  Exchange. 

Objects. — The  objects  of  the  Board  of  Trade  are  set 
forth  in  its  Rules  as  follows: 

(1)  To  maintain  a  commercial  exchange. 

(2)  To  promote  uniformity  in  the  customs  and  usages 

of  merchants. 

(3)  To  inculcate  principles  of  justice  and  equity  in  trade. 

(4)  To    facilitate    the    speedy    adjustment    of    business 

disputes. 

(5)  To  acquire  and  to  disseminate  valuable  commercial 

and  economic  information. 

(6)  To  secure  to  its  members  the  benefits  of  cooperation 

in  the  furtherance  of  their  legitimate  pursuits. 
The  Board  of  Trade,  as  a  corporation,  does  no  trading.    It 
owns  a  building.    In  short,  it  merely  furnishes  (1)  a  place  to 

14 


THE  CHICAGO  BOARD  OF  TRADE 


15 


It-ado;  (2)  rules  of  trading;  (3)  market  information.  The 
members  acting  as  individuals,  trade  among  themselves  and 
as  agents  for  many  thousands  of  outsiders. 

Membership. — The  membership  of  the  Board  of  Trade 
now  (1919)  numbers  1617.  There  is  no  limit  to  the  number 
of  members  who  may  join. 

The  membership  may  be  classified  (1)  as  to  place  of  resi- 
dence, and  (2)  as  to  the  nature  of  their  business. 

(1)  There  are  1198  members  of  the  Board  of  Trade  resi- 
dent in  Chicago.  The  remaining  419  are  distributed  as 
follows : 


New  York 131 

Illinois 71 

•Missouri 50 

Minnesota 44 

Ohio 24 

Canada 24 

Nebraska 18 

Indiana 16 

Iowa 16 

Wisconsin 14 

Massachusetts ...  11 


Pennsylvania.  .  .  11 

Maryland 8 

Michigan 8 

California 7 

Tennessee 6 

Kentucky 6 

Louisiana 5 

South  Dakota. .  .  3 

Arkansas 2 

Texas 2 

Washington.  ...   2 


Washington,  D.  C. 

Arizona 

Kansas 

Virginia 

Florida 

Colorado 

Utah 

Oklahoma 

Oregon 

England 


This  distribution  corresponds  fairly  accurately  to  the 
location  of  the  larger  terminal  markets  and  to  the  important 
consuming  centers. 

(2)  In  classifying  members  on  the  basis  of  their  principal 
activity,  it  must  be  borne  in  mind  that  such  members  are 
quite  generally  active  in  two  or  more  lines  of  the  grain  busi- 
ness, and  hence  an  effort  has  been  made  to  list  a  member 
according  to  his  chief  activity. 

About  one-fourth  of  the  membership  are  interested  in  re- 
ceiving and  selling  consigned  grain  or  in  shipping  cash  grain : 
about  one-fourth  are  primarily  concerned  with  future 


16   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

trading  in  grain  (both  speculative  and  hedging) ;  about  one- 
fourth  are  brokers  who  act  as  agents  for  others  (and  some- 
times for  themselves  as  principals)  in  doing  the  pit  trading 
(future  trading);  the  balance  of  the  membership  represents 
those  interested  directly  and  indirectly  in  grain  or  provisions. 
Banks,  railroads,  and  steamship  companies  have  35  member- 
ships in  order  the  better  to  give  attention  to  the  financing 
and  transportation  of  the  grain.  The  great  flour  mills,  the 
great  corn  products  companies,  the  cereal  breakfast  food 
manufacturers,  have  memberships  and  represent  heavy 
buying  interests.  All  important  Terminal  Elevator  Com- 
panies belong,  and  these  too  represent  strong  buying  power. 
Exporters  represent  another  group  of  buyers.  Both  the 
buying  and  the  selling  side  of  the  market  are  well  represented 
so  that  the  market  factors  are  present  which  go  to  make  up  a 
real  auction. 

One  farmers'  company  which  belongs  to  the  Board  of 
Trade  is  an  export  company  of  Canadian  farmers,  and  does  a 
very  large  wheat  export  business.  A  second  farmers'  com- 
pany operates  six  or  seven  country  elevators  in  Illinois. 

CLASSIFICATION     OF    MEMBERS,    CHICAGO    BOARD    OF   TRADE,   YEAR     1919 

Cash  grain  trade 394  Seeds  and  miscellany 14 

Future  trading 393  Oats  products 14 

Brokers 385  Corn  products 10 

Terminal  elevators 50  Railroads 10 

Pit  scalpers 48  Steamships 9 

Packers 44  Salvage  grain 8 

Provisions 41  Line  elevators 8 

Feeds 35  Stockyards 1 

Exports 27  Vinegar 1 

Flour  mills 24  Inactive 70 

Banks 16 

Malster..  15  1617 


THE  CHICAGO  BOARD  OF  TRADE  17 

The  Packers  and  Provision  Dealers  are  represented,  since 
there  is  one  pit  on  the  Exchange  floor  where  there  is  future 
trading  in  Provisions  (Pork,  Lard,  Short  Ribs). 

In  the  above  list  are  included  two  farmers'  companies, 
namely,  Grain  Growers'  Export  Company,  Winnipeg 
(Thomas  Crerar), — and  the  Plainfield  (111.)  Grain  Com- 
pany (Joseph  A.  Henebry). 

The  Pit  Scalper,  in  the  above  list,  is  a  person  who  trades 
for  himself  in  the  pit,  and  is  in  and  out  of  the  market  on 
very  small  price  fluctuations. 

The  Future  Trading  list  of  members  includes  the  various 
firms  in  Chicago  and  elsewhere  whose  main  business  is  to 
handle  future  trading  orders  for  customers.  In  almost  every 
case  a  Chicago  firm  executing  future  orders  for  a  commis- 
sion is  also  engaged  in  receiving  consigned  grain  in  carlots 
on  commission.  In  fact,  one  distinguishing  feature  of  the 
Chicago  market  is  the  large  mingling  together  of  the  cash 
and  the  future  business. 

Private  Wire  Houses. — There  are  several  large  and  in- 
fluential firms  operating  leased  wires,  and  thes^  firms  are 
generally  called  "  private  wire  houses."  Some  of  these  firms 
have  only  one  branch  office;  some  have  twenty  or  more 
branch  offices;  one  of  them  has  40,000  miles  of  leased  wires, 
stretching  from  Boston  and  New  York  to  San  Francisco,  and 
from  Winnipeg  to  the  Gulf,  and  with  "drops"  in  most  of  our 
large  cities.  Some  of  the  private  wire  houses  reach  out  into 
the  small  towns  of  the  country.  Some  are  engaged  almost 
wholly  in  future  trading:  others  feature  the  cash  grain  busi- 
ness. In  the  above  list,  the  wire  houses  are  listed  under  the 
heads  of  cash  grain  and  future  trading.  A  complete  list  of 
all  wire  houses  connected  with  the  Chicago  Board  of  Trade 
is  given  in  Appendix  6. 


18   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

Membership — Qualifications  for. — Any  male  person  of 
good  character  and  credit,  of  legal  age,  is  qualified,  under 
the  Rules  of  Board,  to  become  a  member.  Applicants  for 
membership  must  first  be  indorsed  and  recommended  by 
two  members  who  stand  sponsors  for  them,  and  must  next 
be  approved  by  the  membership  committee.  The  appli- 
cant's name  is  posted  on  the  bulletin  board  for  at  least  ten 
days.  An  unfavorable  vote  by  three  directors  (out  of  18), 
three  "black  balls,"  is  then  sufficient  to  shut  out  the  appli- 
cant. Upon  joining,  the  applicant  signs  an  agreement  to 
obey  all  the  Rules  of  the  Board  of  Trade,  and  he  is  held  to  be 
strictly  bound  by  these  rules,  under  penalty  of  suspension  or 
expulsion  and  loss  of  his  membership  fee.  Memberships  are 
bought  from  retiring  members  or  from  the  estates  of  de- 
ceased members,  and  cost,  during  the  year  1919  from  ten 
thousand  to  eleven  thousand  dollars.  The  price  varies 
greatly  from  year  to  year. 

Government  of  the  Board  of  Trade. — The  affairs  of  this 
corporation  are  managed  by  a  Board  of  Directors  of  18  mem- 
bers. The  President  is  elected  by  the  general  membership 
for  one  year.  The  annual  election  is  held  in  January.  There 
are  two  vice  presidents  whose  term  of  office  is  two  years. 
There  are  fifteen  other  directors  whose  term  of  office  is  three 
years.  Hence  the  President,  one  vice  president,  and  five 
directors  are  elected  annually. 

As  a  self-governing  institution,  the  Board's  method  of  law 
making  is  very  democratic.  The  initiative  and  referendum 
came  into  vogue  here  long  before  it  became  popular  with  our 
State  governments.  All  rules  are  adopted  by  the  members. 
And  it  is  worthy  of  comment,  that  when  it  comes  to  a  vote, 
the  "small  business"  men  outvote  the  " big  business "  men. 
In  practice,  the  usual  vote  cast  at  an  election  is  about  400  or 


THE  CHICAGO  BOARD  OF  TRADE  10 

500 — much  less  than  half  the  membership.  Since  one-fourth 
the  members  are  non-residents,  it  would  seem  just  and  wise 
to  introduce  a  plan  of  voting  by  mail.  A  larger  and  more 
representative  vote  would  then  be  secured. 

Rules. — Under  the  charter  of  the  Board  it  has  power  to 
adopt  rules  and  to  enforce  them.  Under  this  provision, 
there  have  gradually  grown  up,  during  the  past  fifty  years  an 
elaborate  set  of  Rules,  By-Laws,  and  Regulations,  filling 
almost  one  hundred  and  fifty  printed  pages.  The  rules  are 
easily  changed  to  meet  emergencies,  such  as  war  conditions. 
These  rules  give  very  great  power  to  the  Directors  to  disci- 
pline members.  And  the  courts  have  repeatedly  and  con- 
sistently upheld  this  disciplinary  control  of  members. 

Administrative  Work. — The  active  administrative  work 
is  largely  in  the  hands  of  committees.  A  glance  at  the  list  of 
these  committees  shows  the  great  number  of  important  de- 
tails with  which  the  Board  must  concern  itself  in  order  to 
keep  the  market  machinery  running  smoothly.  At  the  out- 
set we  find  two  committees,  provided  for  in  the  original 
State  Charter,  and  the  only  committees  which  are  elected  by 
the  membership  at  large.  These  are: 

(1)  Committee  on  Arbitration  (10  members) 

(2)  Committee  of  Appeals  (10  members) 

The  other  more  important  committees  (chosen  by  the  Pres- 
ident) are: 

(3)  Membership 

(4)  Warehouse 

(5)  Grain 

(6)  Clearing  House 

(7)  Market  Report 

(8)  Violation  of  Rules 

(9)  Transportation 


20       SPECULATION    AND    THE    CHICAGO    BOARD    OP   TRADE 

(10)  Weighing  and  Custodian 

(11)  Claims  and  Insolvencies 

(12)  To  arrive  grain. 

Physical  Equipment. — The  trading  room  of  the  Exchange 
is  a  high-ceilinged  room,  144  by  161  feet.  The  adjoining 
smoking  room  (no  smoking  is  permitted  on  the  trading  floor) 
is  64  by  72  feet.  In  the  trading  room  along  the  large  east 
windows,  there  are  52  tables  for  displaying  samples  of  cash 
grain,  each  table  capable  of  accommodating  four  firms.  In 
the  case  of  the  larger  firms,  of  course,  one  table  is  used  by  one 
firm  only. 

To  accommodate  those  engaged  in  future  trading  there  are 
four  circular  "pits,"  with  three  or  four  steps  leading  down 
into  the  pit.  These  are  the  wheat  pit,  the  corn  pit,  the  oats 
pit  and  the  provisions  pit. 

To  accommodate  those  buying  grain  "to  arrive"  there  is  a 
desk  where  all  bids  are  recorded  and  from  which  they  are  at 
once  posted  on  the  large  blackboard. 

The  trading  floor  of  the  Exchange  is  provided  with  means 
of  securing  market  information,  rapidly  and  accurately,  and 
of  disseminating  market  information  to  all  interested. 
There  are  100  telephones  and  150  telegraph  instruments. 
Large  blackboards  display  such  information  as  the  following: 
Exports  of  bread-stuft's  at  Atlantic  and  at  Pacific  ports: 
Cash  Grain  Market  at  other  important  terminals:  Futures 
market  at  Minneapolis,  Duluth,  Winnipeg,  Kansas  City, 
St.  Louis,  New  York:  Visible  supply  of  grain  at  Baltimore, 
Boston,  Buffalo,  and  all  other  important  markets,  including 
also  grain  afloat  at  each  terminal  where  vessels  are  loaded: 
Movement  of  grain — at  Chicago —  receipts  by  each  railroad 
— shipments  by  each  railroad:  Daily  receipts  in  Chicago 
warehouses  and  daily  shipments  from  same:  Inspection— 


THE  CHICAGO  BOAKI)  OF  TKADE  21 

car  lots,  grades,  etc.,  in  Chicago.  Several  Tickers  are  on  the 
floor,  some  giving  price  quotations,  and  some  the  so-called 
market  gossip  (i.  e.,  domestic  and  foreign  news  items  of  com- 
mercial and  financial  significance).  There  is  also  a  large 
weather  map,  furnished  by  the  United  States  Department 
of  Agriculture,  showing  for  each  morning  the  country's 
weather  (wind  direction,  precipitation,  clear  or  cloudy,  and 
barometer).  This  is  supplemented  by  large  charts  giving 
precipitation  for  many  shipping  points  in  each  grain-produc- 
ing State. 

The  factors  affecting  either  supply  of  or  demand  for  grain 
are  quickly  noted  and  made  public  here.  A  strike  of  the 
Boston  police  for  instance,  is  reported  on  the  gossip  ticker, 
and  a  depression  is  cast  over  the  demand  for  wheat. 

The  important  newspapers  have  representatives  in  the 
"press  gallery" — a  section  near  the  Provisions  Pit.  They 
report  the  doings  of  the  market  to  their  millions  of  readers 
in  any  manner  they  see  fit — so  long  as  they  don't  spread 
market  rumors,  which  is  strictly  forbidden  by  the  rules. 

This  very 'brief  catalogue  of  facts  is  intended  to  disclose 
in  general  outline  what  market  machinery  is  comprehended 
under  the  term,  "Board  of  Trade,"  and  that  this  market 
machinery  is  under  democratic  rules  of  self-government. 

With  what  degree  of  efficiency  this  machinery  works  must 
be  discussed  under  Section  IV  of  this  Report,  following. 


IV 
THE  CHICAGO  BOARD  OF  TRADE 

VIEWED  AS  A  PIECE  OF  MAKKET  MACHINERY:  OPERATION 
AND  FUNCTIONS:  SIXTY  YEARS  OF  ACTIVITY 

A  Continuous  Market. — When  the  World  War  began  in 
1914,  the  commercial  and  financial  shock  was  so  terrific  that 
all  the  world's  stock  exchanges  closed  their  doors.  The 
Directors  of  the  Chicago  Board  of  Trade  paused  for  a  mo- 
ment and  considered  closing  the  Board,  but  decided  against  it. 
So  the  Board  has  a  record  of  being  open  continuously,  with- 
out a  break,  on  every  business  day  since  it  was  incorporated. 
In  other  words,  in  any  hour  of  any  business  day,  in  war  or  in 
peace,  in  prosperity  or  in  panic,  grain  could  be  sold  on  the 
Chicago  Board  of  Trade  at  a  market  value  which  was  open 
and  known  to  all  men.  What  is  the  value  of  a  continuous 
market  to  the  man  who  has  something  to  sell?  It  is  impos- 
sible to  state  it  in  definite  terms.  The  man  who  has  been 
called  on  suddenly  to  sell  a  team  of  horses  or  a  house  and  lot 
or  a  farm — things  for  which  there  are  no  organized  exchanges 
— can  doubtless  appreciate  both  the  promptness  and  the 
definiteness  of  organized  exchange  prices. 

A  Picture  of  One  Day's  Trading. — A  cross-section  of  the 
Board  of  Trade  market  at  work  would  present  a  true  picture 
of  its  various  related  activities.  The  writer  made  a  study  of 
this  kind,  selecting  a  day  in  August,  when  the  movement  of 
wheat  and  oats  to  market  was  extra  heavy,  but  the  move- 

22 


THE  CHICAGO  BOARD  OF  TRADE  23 

ment  of  corn  was  extra  light,  thus  getting  a  fair  average  day's 
business.*  Before  the  details  of  this  study  are  given,  it 
is  well  to  state  in  brief  outline  what  actually  takes  place 
on  the  trading  floor.  Grain  is  sold  in  three  ways,  namely, 
(1)  cash  grain:  (2)  To  arrive  grain:  (3)  Future  delivery,  or 
grain  " futures."  The  cash  grain  is  in  cars  in  the  switching 
district  of  Chicago :  it  has  been  inspected  by  the  State  In- 
spection Department:  official  State  samples  are  displayed 
in  strong  paper  bags,  each  containing  about  a  quart  of 
grain  and  each  bag  with  proper  notation  showing  kind  of 
grain,  grade,  dockage,  and  moisture  content.  These  samples 
are  placed  on  the  sample  tables  of  the  commission  merchants 
to  whom  the  cars  have  been  consigned.  It  is  the  chief  busi- 
ness of  the  commission  merchant  to  sell  this  grain  to  the 
highest  bidder,  and  upon  his  success  in  performing  this  serv- 
ice depends  the  continued  patronage  of  the  country  shipper. 
The  term  "to  arrive/'  as  used  on  the  Chicago  market,  means 
time  of  shipment,  not  time  of  arrival  (as  on  the  Minneapolis 
market).  To  arrive  grain  is  bought  to  be  shipped,  for  in- 
stance, in  3  days,  or  in  10  days,  or  20  days,  or  even  in  90 
days  or  longer,  depending  on  local  conditions.  The  bids  are 
wired  out  or  mailed  out  overnight  to  the  country,  subject  to 
acceptance  by  the  time  of  the  opening  of  the  market  in  the 
morning.  Or  bids  are  sent  out  during  the  day,  subject  to 
immediate  acceptance. 

Future  trading  is  dealing  in  grain  for  future  delivery, 
the  regular  delivery  months  usually  being  May,  July,  Sep- 
tember and  December.  Future  trading  is  of  two  kinds, 
speculative  and  hedging.  A  part  of  future  trading  is  known 

*  The  day  selected  for  study  was  Monday,  August  25,  1919.  There 
was  no  future  trading  in  wheat  owing  to  the  guarantee  of  wheat  prices 
by  the  federal  government. 


24        SPECULATION    AND    THE    CHICAGO    BOARD    OF    TRADE 

as  "hedging,"  and  is  a  form  of  insurance,  as  explained  later. 
A  part  of  future  trading  is  purely  speculative.  It  is  really 
dealing  in  grain  contracts,  rather  than  in  grain.  Some 
members  of  the  Board  of  Trade  devote  their  energies  wholly 
to  speculation,  and  are  known  as  "professionals."  Again, 
there  is  a  sub-class  of  speculators  who  are  called  "scalpers," 
or  "pit  scalpers,"  since  they  buy,  or  sell,  on  each  slight  drop, 
or  rise,  in  the  market,  trying  to  scalp  a  little  profit  off  each 
fluctuation  for  themselves.  They  do  not  risk  carrying  any 
trades  overnight  but  aim  to  be  even  at  the  close  of  each  day. 
The  "professional  speculator,"  however,  deals  for  the  longer 
swings  of  the  market,  over  a  period  of  days  or  even  weeks. 
A  third  class  of  speculators  are  the  "amateurs"  who  send  in 
orders  for  trades  to  be  executed  on  a  small  commission. 
According  to  tradition,  ninety  per  cent  of  the  amateur 
speculators  lose,  and  two  years  is  the  average  market  life  of 
the  amateur. 

Bears :  Short  Selling. — The  person  who  thinks  the  market 
price  is  too  high  and  therefore  is  likely  to  drop,  and  who  sells, 
expecting  to  buy  later  at  a  lower  price,  is  called  a  short 
seller.  He  is  "short"  of  the  commodity  he  sells — that  is, 
does  not  have  it,  but  expects  to  be  able  to  buy  later  at  a 
profit.  Of  course  the  short  seller  believes  the  market  will 
fall  and  wants  the  market  to  fall.  He  is  therefore  called  a 
bear,  and  his  selling  is  said  to  "bear  the  market."  The  man 
who  has  sold  is  called  a  "short." 

Bulls:  Longs. — About  half  the  speculators,  ordinarily, 
believe  the  market  is  likely  to  rise,  and  hence  they  buy,  ex- 
pecting to  sell  out  later  at  a  profit.  Since  they  want  the 
market  to  rise  and  believe  it  will  rise,  they  are  called  "bulls," 
and  their  buying  is  said  to  "bull  the  market."  The  man 
who  buys  is  called  "long."  It  is  obvious,  that  should  there 


THE  CHICAGO  BOARD  OF  THADE  25 

be  100  traders  in  the  pit,  75  offering  to  sell  and  only  25  bid- 
ding in  same  amounts,  it  would  temporarily  be  a  bear  mar- 
ket— prices  would  decline.  Conversely  if  75  were  buying 
and  25  selling  in  same  amounts,  it  would  be  a  bull  market. 
In  such  a  case  the  shorts  (the  bears)  might  take  fright  at  the 
rise  in  price,  foreseeing  their  profits  wiped  out — and  possible 
loss  accumulating — and  begin  to  "  cover,"  that  is,  buy  to 
cover  the  amount  of  their  sales.  When  such  a  situation 
develops,  it  gives  opportunity  to  the  " bulls"  to  sell  out  their 
purchases  at  a  profit  which,  in  effect,  puts  them  temporarily 
on  the  bear  side  of  the  market.  Thus  each  fluctuation  of  the 
market  is  a  signal  of  activity  to  both  bulls  and  bears. 

Overbought:  Oversold:  Liquidated:  "Technical  posi- 
tion".— The  market,  in  trade  language,  is  called  over- 
bought when  the  speculators  have  bought  all  they  can  or 
care  to,  with  the  short  interests  temporarily  eliminated.  It 
is  oversold  when  the  traders  have  sold  all  they  can  or  care  to, 
with  longs  well  out  of  the  market,  for  the  time  being.  When 
the  longs  have  sold  out  as  much  as  possible  the  market  is 
said  to  be  liquidated.  The  "technical  position"  of  the  mar- 
ket is  said  to  be  weak  when  "after  a  sharp  upturn  due  to 
buying  by  discouraged  shorts,  new  purchasers  show  a  dis- 
position not  to  buy  except  at  considerable  concession  in 
price,  and  when  the  remaining  short  interests  in  the  market 
is  a  hedging  interest  that  is  not  likely  to  be  disturbed  by 
market  actions  in  either  direction;  or  the  technical  position 
may  be  said  to  be  weak  when  buyers,  who  have  followed  an 
advance,  have  found  their  buying  insufficient  to  absorb  the 
offerings  and  have  witnessed  a  decline  to  a  point  near  which 
they  wish  to  stop  their  loss,  new  buyers  not  appearing  in 
sufficient  volume  to  prevent  further  decline.  In  such  a  case 
they  would  expect  to  find  stop-loss  orders  in  the  market 


2t>       .SPECULATION    AND    THE    CHICAGO    BOARD    OF   TRADE 

which  if  encountered  because  of  further  decline,  would  be 
likely  to  bring  about  a  sharp  break  until  the  holdings  so 
liquidated  are  thoroughly  digested  at  a  lower  level." 

Margins. — Trading  in  futures  is  sometimes  called  margin 
trading,  because  at  the  time  of  the  purchase  (or  sale)  of  the 
commodity  only  a  small  installment  of  the  price  is  advanced. 
Under  the  rules  of  the  Board  of  Trade  a  ten  per  cent  margin 
may  be  called.  That  is,  a  person  buying  5000  bushels  of 
wheat  at  $1.00  a  bushel,  for  future  delivery,  could  be  called 
for  $500.  And  the  same  amount  could  be  called  from  the 
short  seller  of  5000  bushels  at  $1.00  a  bushel  to  protect  the 
trade.  The  reader  will  bear  in  mind,  at  this  point,  that  mar- 
gin trading  is  the  system  now  in  vogue  in  real  estate,  and  the 
system  which  has  been  in  vogue  in  real  estate  for  several 
hundred  years  at  least.  The  margin  system  of  buying,  al- 
though called  by  various  other  names,  is  common  in  buying 
a  large  per  cent  of  the  articles  advertised  in  our  monthly 
magazines.  In  protecting  contractors'  bids  on  city,  State, 
and  Federal  contracts,  governmental  authorities  uniformly 
require  the  bid  to  be  accompanied  with  a  "  margin."  Mar- 
gin trading  is  not  peculiar  to  grain  exchanges,  but  enters 
into  the  business  life  of  the  nation  at  many  points.-  Like  the 
credit  system  as  a  whole  (of  which  it  forms  a  part)  it  seems  to 
be  increasing  in  use  as  a  modern  convenience  in  conducting 
business. 

One  Day's  Market. — On  the  day  selected  for  study  of  the 
day's  trading  (August  25,  1919),  there  were  2595  persons, 
living  in  over  half  the  States  in  the  union,  who  executed 
trades  on  the  Chicago  Board  of  Trade.  These  were  persons 
acting  as  principals,  trading  either  directly  or  through  agents 
on  the  floor  of  the  Exchange.  Of  this  number  of  persons, 
1083  were  buyers  or  sellers  of  cash  grain;  36  were  buyers 


THE  CHICAGO  BOARD  OF  TRADE  27 

or  sellers  of  to  arrive  grain;  1476  were  buying  or  selling 
future  contracts.  The  cash  grain  was  mostly  wheat;  the 
futures  were  corn  and  oats,  with  an  insignificant  amount  of 
rye.  The  cash  grain  sold  was  1220  cars  (approximately 
1,830,000  bushels);  the  to  arrive  was  72  cars  (approximately 
108,000  (bushels);  the  futures  amounted  to  36,686,000 
bushels. 

Analyzed  in  greater  detail,  the  following  facts  are  sig- 
nificant: 

Shippers  of  the  cash  grain  to  the  Chicago  market  num- 
bered 752,  living  in  ten  States,  ranked  in  the  order  of  their 
importance  as  follows:  Illinois,  Iowa,  Indiana,  Missouri, 
South  Dakota,  Minnesota,  Wisconsin,  Michigan,  Nebraska, 
Wyoming. 

There  were  331  buyers  of  this  grain  representing  nine 
States  as  follows:  Illinois,  Ohio,  Michigan,  New  York, 
Massachusetts,  Pennsylvania,  Indiana,  New  Jersey  and 
District  of  Columbia.  The  buyers  are  classified -as  follows: 

Terminal  Elevators  in  Chicago 69  per  cent 

Shippers— chiefly  East  and  New  England 12    "       " 

Millers,  Feed  Manufacturers,  Industries 16    "     " 

Exporters 7    "     " 

"Scalping"  of  cash  grain  has  no  place  on  this  market,  the 
cash  grain  passing  directly  on  to  a  consumptive  buyer  in 
practically  every  case. 

It  is  impossible  to  classify  future  trades  as  between 
"hedges "  and  " speculative  trades."  Futures  for  the  day  are 
therefore  classified  on  the  following  basis: 

Volume  sold  (and  bought)  for  September  delivery 3,958,000  bu. 

"December          "      27,534,000" 

"   May  "      5,194,000   " 

Total  Futures 36,686,000  bu. 


28   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

Number  of  sellers,  1414 

Located  in  following  28  States,  ranked  in  order  of  impor- 
tance : 

1.  Illinois  8.  Oklahoma  15.  Michigan  22.  Louisiana 

2.  New  York      9.  Iowa  16.  Montana  23.  Kansas 

3.  Missouri  10.  Nebraska  17.  Colorado  24.  Maryland 

4.  Minnesota  11.  Indiana  18.  Oregon  25.  Pennsylvania 

5.  Canada  12.  Kentucky  19.  Wisconsin  26.  Washington 

6.  Ohio  13.  Tennessee  20.  Alabama  27.  Arizona 

7.  California  14.  Massachusetts  21.  Mississippi  28.  Virginia 

Number  of  buyers  (including  above  sellers)  1476. 
Located  in  following  28  States,  ranked  as  above: 

1.  Illinois  8.  California  15.  Colorado  22.  Alabama. 

2.  New  York  9.  Michigan  16.  Tennessee  23.  Louisiana 

3.  Missouri  10.  Nebraska  17.  Virginia  24.  Massachusetts 

4.  Iowa  11.  Canada  18.  Mississippi  25.  Kansas 

5.  Minnesota  12.  Kentucky  19.  Washington  26.  Maryland 

6.  Indiana  13.  Wisconsin  20.  Oregon.  27.  New  Hampshire 

7.  Ohio  14.  Oklahoma  21.  Montana  28.  Pennsylvania 

A  glance  at  these  figures  shows  that  the  producing  centers 
and  the  consuming  centers  make  up  the  volume  of  the  trad- 
ing in  futures.  The  " amateurs"  furnished  about  twenty  per 
cent  of  the  volume  of  futures,  the  balance  coming  from  pro- 
fessionals and  scalpers.  On  this  day  sixty  per  cent  of  the 
amateurs  were  bulls — took  the  buying  side.  The  amateur's 
vision  sees  when  the  price  is  too  low  and  it  is  profitable  to 
buy.  It  is  commonly  said,  however,  that  his  vision  does  not 
also  see  when  prices  are  too  high,  and  it  is  time  to  sell,  and 
that  is  the  reason  he  is  an  amateur. 

The  figures  showing  these  facts  are  as  follows: 


THE  CHICAGO  BOARD  OF  TRADE  29 

Bought,  bushels  Sold,  bushels 

Members  trading  for  themselves 18,402,000  20,010,000 

"                       "   other  members 9,664,000  10,802,000 

"            "         "   non-members 8,620,000  5,874,000 


36,686,000          36,686,000 

What  "toll"  docs  this  market  collect  for  its  services? 
The  cash  grain  business  is  governed  by  fixed  rates  of  com- 
mission, which  are  substantially  the  same  in  all  markets, 
namely,  one  per  cent  commission,  i.  e.,  one  cent  on  each 
dollar's  worth  of  grain  sold.  Future  commissions  are  also 
fixed  by  the  rules,  and  are  at  present  one-fourth  of  a  cent  per 
bushel  for  the  "round  turn/'  that  is,  for  both  buying  and 
selling.  In  other  words,  for  buying  5000  bushels  and  selling 
5000  bushels,  the  commission  is  $12.50.  The  broker,  who 
enters  the  pit  and  executes  an  order  for  a  house  dealing  in 
futures  is  entitled  to  a  brokerage  of  75  cents  for  5000  bushels. 
This  is  paid  by  the  house,  not  by  "the  country."  It  will  be 
noticed  that  52  per  cent  of  the  trading  in  futures  is  done  by 
members  for  themselves,  on  which  there  is  no  commission 
charged;  28  per  cent  is  done  by  members  for  other  members, 
at  half  rates.  So  the  "toll"  for  the  day's  trading  in  futures 
can  easily  be  calculated. 

Members  trading  for  themselves $          0.00 

"    other  members 12,791 .25 

"         "    non-members 18,242.50 

Total $31,033.75 

In  other  words,  the  commissions  on  one  day's  future  trading, 
36,686,000  bushels,  is  $31,033.75.  On  the  same  basis,  the 
volume  for  one  year  would  be  11,005,800,000  bushels  and 


30   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

coinmission  of  $9,310,125.  These  figures  cover  trading  in 
corn,  oats  and  rye.  As  mentioned  before,  during  the  period 
of  the  government  guarantee  of  the  wheat  price  there  was  no 
future  trading  in  wheat.*  The  corn  and  oats  crop  of  the 
country  usually  average  somewhat  over  4,000,000,000 
bushels,  and  the  Chicago  market  is  used  for  hedging  the 
crop  as  it  passes  from  producers  into  final  consumption. 
The  "toll"  on  the  whole  crop  imposed  by  future  trading  is 
4~0  of  a  cent  per  bushel,  or  slightly  under  J  of  a  cent  a  bushel. 

The  use  of  a  future  trading  for  hedging  is  described  below, 
and  the  general  theory  of  speculation  and  hedging  in  the  last 
chapter. 

The  commissions  on  the  cash  grain  for  the  day,  at  one  per 
cent,  are  calculated  to  be  $30,500. 

Selling  Cash  Grain. — The  samples  of  cash  grain  are  dis- 
tributed on  the  proper  tables  by  employees  of  the  Board,  early 
in  the  morning.  Trading  begins  at  9 : 30.  The  first  hour  is 
spent  largely  in  feeling  out  the  market.  During  that  time 
the  one  or  two  hundred  men  representing  the  buying  and  the 
selling  interests  circulate  cautiously  among  the  tables,  get- 
ting a  mental  inventory  of  the  amount  of  grain  arrived  for 
the  day  and  the  general  quality  and  condition  of  it.  By 
10 : 30  active  selling  begins.  The  chief  sellers  are,  of  course, 
the  commission  merchants — about  100  in  number — who 
handle  the  consigned  grain.  Rules  forbid  them  to  be  both 
principal  and  agent  in  the  same  transaction.  Hence  grain 
consigned  to  them  must  be  sold  by  them  in  the  open  market. 
The  buyers  are  chiefly  the  following  interests:  terminal 
elevators,  shippers  to  eastern  mills,  particularly  New  Eng- 
land and  New  York,  flour  millers,  manufacturers  of  corn 
products,  rolled  oats,  breakfast  foods,  cereals,  etc.,  malsters, 
*  August  25,  1917,  to  Fall  of  1920. 


THE  CHICAGO  BOARD  OF  TRADE  31 

feed  manufacturers,  and  exporters.  The  market  is  a  highly 
competitive  one  in  every  sense  of  the  term.  The  commission 
merchants  use  all  the  arts  of  the  trade,  taught  them  by  years 
of  experience,  to  secure  the  best  prices  for  their  patrons. 
They  know  what  buyers  prefer  particular  kinds  of  grain — 
which  one  white  corn,  which  yellow  or  mixed;  which  want 
standard  oats;  which  mill  oats;  which  white  oats.  They 
know  where  to  go  for  a  premium  on  the  choice  grain;  where 
to  find  a  buyer  for  low  grade  and  "rejected"  grains.  The 
buyers  in  turn,  feel  back  of  them  the  vpressure  of  the  con- 
sumers' demands.  If  the  " seaboard"  is  taking  shipments 
freely,  they  buy  more  freely.  If  New  England  overnight 
places  strong  bids,  that  tones  up  the  market.  If  arrivals 
continue  heavy  a  few  days  without  a  corresponding  strength- 
ening in  demand,  prices  work  lower.  If  arrivals  slacken  for 
a  time,  and  demand  holds  up,  prices  work  upwards.  Back 
of  the  arrivals  there  is  the  visible  supply  to  affect  the  market, 
and  back  of  the  visible  the  grain  afloat  on  the  Lakes  and  in 
passage  on  the  ocean,  and  back  of  that  the  more  remote  and 
fundamental  factors  of  acreage,  crop  conditions,  weather 
reports,  etc.  By  " visible  supply"  is  meant  the  grain  stocks 
in  public  and  private  terminal  elevators  at  all  terminal  mar- 
kets. 

The  commission  merchant,  who  is  the  agent  of  the  country 
shipper  on  the  market,  performs  certain  definite  services  in 
addition  to  the  major  service  of  selling  the  grain.  (1)  He 
gives  attention  to  the  grade  of  the  grain,  and  calls  for  re- 
inspection  in  case  his  own  private  inspection  satisfies  him 
that  a  reinspection  would  raise  the  grade.  (2)  He  combats 
the  evil  of  car  shortage  by  doing  all  in  his  power  to  secure 
cars  for  his  shippers.  (3)  He  files  and  pushes  all  claims 
for  shortage  and  damage  of  grain  in  transit.  (4)  He  finances 


32   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

the  country  shipper  to  a  very  liberal  extent  by  making  ad- 
vances against  the  bills  of  lading.  When  it  is  recalled  that 
the  bill  of  lading  arrives  by  mail  many  days,  and  sometimes 
many  weeks  ahead  of  the  grain,  this  service  will  be  better 
appreciated.  One  Chicago  commission  house  thus  had  out- 
standing at  one  time  over  $800,000  advanced  against  bills  of 
lading,  this  money  of  course  being  borrowed  by  the  commis- 
sion house  from  the  banks;  another  Chicago  house  had  out 
over  $2,000,000.  (5)  General  protection.  In  the  evolution 
of  the  Chicago  market  as  described  in  the  following  pages — 
the  country  shipper  was  for  many  years  under  the  heels  of  a 
monopoly,  from  which  position  he  was  finally  extricated,  in 
part  by  his  own  actions,  in  part  by  the  help  of  the  commis- 
sion merchants  of  the  terminal  market. 

The  commission  merchant,  after  selling  a  car  of  grain  and 
getting  the  official  weights  and  the  money  due  on  it,  remits 
to  the  shipper  the  proceeds  due  him  as  shown  by  an  ''account 
sales  "  which  always  accompanies  the  check.  This  document 
is  supplemented  by  certain  trade  documents,  such  as  seal 
record  of  the  car,  weighmaster's  certificate,  etc.,  so  that  the 
shipper  is  protected  from  fraud  from  his  commission  mer- 
chant, even  should  his  commission  merchant  attempt  such  a 
thing.  It  is  a  significant  fact  that  the  various  disclosures  in 
recent  years  of  peculations  and  swindles  by  commission 
merchants  refer  almost  wholly  to  the  commission  merchants 
in  the  unorganized  markets,  particularly  produce,  such  as 
potatoes,  cabbage,  poultry,  eggs,  butter,  and  so  on.  The 
organized  grain  exchanges  have  done  big  work  in  making 
strictly  honorable  the  business  of  a  commission  merchant. 
Any  complaint  of  fraud  coming  to  the  Board  from  a  country 
shipper  is  promptly  looked  into,  and  settled  strictly  on  its 
merits. 


THE  CHICAGO  BOARD  OF  TRADE  33 

Tho  words  "trade  documents"  convey  to  the  casual  reader 
but  a  faint  impression  of  the  significance  of  these  trade  in- 
struments. No  other  market  has  developed  these  means  of 
protection  to  the  country  shipper  to  the  extent  that  the 
g-ain  trade  has.  There  is  accordingly  given  in  appendix  20 
of  this  book  (page  238),  a  very  interesting  set  of  these  trade 
documents,  showing  the  actual  "life  history"  of  a  car  of 
grain  as  it  travels  from  an  Iowa  country  station,  to  the 
Chicago  Commission  merchant,  and  on  to  the  final  buyer. 
The  important  functions  of  weighing,  inspecting  and  grading 
are  protected  by  every  reasonable  safeguard.  Over  twenty 
separate  documents  are  exhibited,  showing  how  full  and 
complete  is  the  information  given  on  every  step  of  the  trans- 
action. These  "exhibits"  show  the  large  extent  of  the 
purely  mechanical  detail  involved  in  taking  care  of  the 
country  customer's  interests,  and  yet  for  the  expert  selling 
service  and  for  all  this  routine  of  detailed  service,  the  com- 
mission merchant  receives  one  per  cent  as  his  margin  of  cost. 
In  case  the  commission  merchant  is  employed  to  buy  or  sell 
the  grain  for  future  delivery,  or  both  buy  and  sell,  his  charge 
is  only  one-fourth  of  a  cent  a  bushel. 

Low  Margin  of  Cost. — Grain  is  handled  by  the  "middle- 
men" on  the  organized  Exchanges  for  the  lowest  margins 
of  cost  of  any  commodity.  In  most  forms  of  merchandising 
a  five  per  cent  margin  is  looked  upon  as  a  very  low  charge. 
The  largest  automobile  works  in  the  country,  famous  for  its 
efficiency  in  cheap  distribution  of  cars,  allows  its  agents  15 
per  cent  for  selling.  The  margin  on  dry  goods  is  said  to 
average  19  per  cent.  The  California  Fruit  Growers'  Ex- 
change found  that  the  average  margin  taken  by  the  jobber 
in  distributing  the  oranges  from  the  Growers'  Exchange  to 
the  retailer  was  8.4  per  cent,  and  very  little  risk  was  involved 


34        SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

on  the  part  of  the  jobber;  the  retailer,  in  turn,  took  a  margin 
of  29  per  cent.  The  fact  that  grain  is  handled  at  1  per  cent 
— the  lowest  margin  of  any  farm  product — is  due  to  the 
evolution  of  the  present  grain  exchange  with  its  coordinated 
and  interrelated  system  of  cash  and  future  trading. 

The  subjects  of  speculation  and  hedging  claim  a  good 
share  of  attention  by  those  who  discuss  the  Chicago  Board  of 
Trade.  The  discussion  of  the  subject  of  speculation  forms 
an  important  portion  of  this  book.  At  this  point,  however, 
the  discussion  must  be  limited  to  hedging. 

Hedging. — Hedging  is  a  form  of  insurance  against  loss 
through  price  fluctuations.  In  its  simplest  form,  a  person 
who  has  bought  grain  may  hedge  by  selling  an  equal  amount : 
conversely,  a  person  who  has  sold  may,  for  protection,  buy 
an  equal  amount.  In  other  words,  a  person  who  is  neither 
long  nor  short  is  running  no  risk;  he  is  hedged.  To  make 
concrete  these  two  forms  of  hedging,  consider  the  following 
typical  cases: 

(1)  A  country  elevator  in  North  Dakota  is  buying  the 
farmers'  grain  and  paying  cash  for  it.  This  grain  cannot 
be  put  on  the  Minneapolis  market  for  two  weeks:  or  in  case 
of  the  usual  car  shortage  prevailing  in  recent  years,  not 
for  several  weeks.  If  the  price  rises,  the  manager  will  make 
money  for  his  company;  if  the  price  falls,  he  will  lose.  To 
stablize  his  business,  to  keep  his  business  margin  of  profit 
narrow  and  safe,  in  short,  to  protect  himself,  he  will  hedge 
in  the  Minneapolis  pit  by  selling  as  much  as  he  has  bought. 
He  will  sell  for  future  delivery.  Some  speculator  or  industry 
will  be  willing  to  buy.  When  this  hedged  grain  reaches  the 
market  and  sells  for  cash-,  the  hedge  is  bought  back  in  the  pit. 
When  grain  is  thus  hedged,  the  manager,  has  no  further 
interest  in  market  fluctuation,  whether  the  price  rises  or 


THE  CHICAGO  BOARD  OF  TRADE  35 

falls,  since  he  has  both  bought  and  sold,  and  will  gain  as 
much  on  the  cash  as  he  loses  on  the  future,  or  vice  versa.  In 
this  simple  case  the  car  of  grain  has  been  bought  and  sold 
once  iii  the  pit.  The  smallest  lot  which  can  be  hedged  is 
1000  bushels.  The  expense  for  hedging  5000  bushels,  round 
turn,  is  $12.50,  a  fairly  cheap  insurance.  A  fluctuation  of 
one  cent  a  bushel  would  mean  $50  on  the  five  thousand 
bushel  lot — a  risk  which  most  managers  cannot  afford  to 
take — and  which  the  farmer  himself,  if  he  knows  it,  does  not 
care  to  have  shifted  to  his  shoulders  in  the  form  of  wider 
margins  taken  by  the  country  elevator. 

If  the  car  of  grain  above  noted  had  been  sold  to  a  Term- 
inal Elevator — as  it  likely  would  be,  the  Elevator  would  in 
turn  hedge  by  selling  a  future  against  it.  Thus  the  5000 
bushels  of  wheat  would  be  sold  twice  over  in  the  pit,  in  the 
way  of  legitimate  hedges. 

(2)  The  second  general  type  of  hedging  is  represented  by 
the  flour  mill  which  has  made  a  contract,  for  instance,  with 
a  large  bakery  company,  agreeing  to  deliver  2000  barrels  of 
flour  a  week  for  the  next  six  months,  at  a  specified  price. 
This  will  require  234,000  bushels  of  wheat — much  more 
wheat  than  the  largest  flour  mill  cares  to  carry  in  stock.  In 
such  a  case  the  mill  goes  into  the  future  market  and  buys 
wheat  to  offset  the  flour  sold,  and  is  thereby  hedged.  The 
usual  milling  profit  is  assured,  and  the  mill  does  not  specu- 
late on  price  changes.  While  most  flour  mills  buy  in  the  pit, 
very  few  ever  take  deliveries  on  their  future  contracts.  They 
buy  the  cash  wheat  from  day  to  day,  from  the  samples  on 
the  tables,  which  suits  their  particular  milling  demands.  As 
fast  as  they  buy  cash  wheat,  they  sell  an  equal  amount  of 
futures.  Thus  their  future  contracts  are  sold  out,  that  is, 
passed  on  to  others  who  either  want  to  speculate  in  wheat 


36   .SI'F.crLATIOX  AND  THE  CHICAGO  BOARD  OF  TRADE 

contracts  or  to  take  the  grain  when  delivery  time  conies. 
Thus  it  comes  about  that  the  same  wheat  may  be  hedged 
three  times  in  the  pit.  It  is  obvious,  therefore,  that  only  a 
small  part  of  the  grain  traded  in  the  pit  is  actually  delivered, 
although  each  transaction  is  an  unconditioned  contract  to 
deliver.  The  contract  itself  is  sold,  or  passed  on,  till  it 
reaches  its  final  hands — the  man  who  wants  the  grain,  or  the 
speculator  who  settles  it  by  paying  or  receiving  the  balance 
due  on  it. 

These  two  general  types  of  hedging  transaction ,  illustrate 
also  the  relation  of  hedging  to  speculation.  There  are  not  at 
all  times  enough  cash  grain  interests  in  the  market  to  ab- 
sorb the  hedging  transactions,  hence  this  function  falls  in 
part  on  the  professional  speculator  and  on  the  amateur 
speculator. 

The  sellers  of  futures  in  the  pit,  for  hedging  purposes,  arc, 
in  addition  to  the  country  elevators,  the  following:  line 
elevator  companies,  terminal  elevators,  buyers  of  to  arrive 
grain,  and  farmers.  Farmers  are  mentioned  in  this  connec- 
tion because  in  certain  sections  of  the  country,  particularly 
Illinois,  Iowa  and  North  Dakota,  a  large  number  of  farmers 
now  use  the  machinery  of  the  grain  exchange.  This  was 
strikingly  illustrated  just  after  the  World  War,  particularly 
in  the  fall  of  1919 — the  period  being  one  of  great  business 
unrest,  due  to  widespread  labor  strikes,  government  suits 
against  the  "Big  Five"  Packers,  and  government  propa- 
ganda against  the  high  cost  of  living.  As  a  result  of  these 
and  various  other  factors  the  price  of  corn  began  to  fall  in 
August  and  registered  a  heavy  and  steady  decline  during  the 
next  sixty  days.  Many  Iowa  and  Illinois  farmers,  with  their 
corn  crop  assured,  sold  for  December  delivery  in  the  Chicago 
pit.  In  this  manner  they  made  effective  their  own  market 


THE  CHICAGO  BOARD  OF  TRADE  37 

opinion,  and  soon  rod  the  price  for  their  corn  which  suited 
them  best. 

On  the  Inlying  side  of  the  hedging  market  are  flour  mills, 
shippers,  exporters,  the  industries  using  grains,  etc. 

It  will  be  borne  in  mind  that  the  buyers  of  hedges  become 
later,  sellers  in  the  pit,  when  the  hedges  are  closed  out.  Like- 
wise the  sellers  of  hedges  above  described  finally  become 
buyers,  when  their  hedges  are  bought  in. 

The  question  may  be  asked,  how  is  grain  hedged  that  is 
not  subject  to  future  trading?  The  answer  is  very  simple. 
It  is  handled  on  a  wider  margin.  Where  wheat  is  handled  on 
a  one-cent  margin,  barley  is  handled  on  a  three-cent  margin. 
The  farmers  thus  bear  this  additional  two-cent  margin,  by 
receiving  a  smaller  price  for  the  grain.  Hedging  in  the  pit 
costs  one-fourth  of  a  cent  a  bushel. 

If  we  may  rely  upon  the 'various  published  investigations 
as  to  the  "middleman's  toll,"  the  cost  of  moving  grain  from 
producer  to  the  consumer  is  lower  than  the  cost  of  moving 
any  other  standard  food  product.  This  low  cost  is  directly 
related  to  the  methods  of  handling  grain  on  the  organized 
exchanges,  and  particularly  to  the  process  of  hedging  on  a 
wide,  open  market. 

This  whole  matter  is  better  understood  after  looking  at 
the  background  of  our  grain  marketing,  and  seeing  through 
what  evolution  it  has  passed. 

Evolution  of  the  Board  of  Trade. — A  careful  study  of  any 
commercial  institution  generally  shows  that  its  roots  go  deep 
into  the  past,  and  that  it  is  largely  the  product  of  a  natural 
evolution,  the  "survival  of  the  fittest"  among  commercial 
usages  and  customs.  This  is  true  of  the  Chicago  Board  of 
Trade,  for,  like  Topsy,  it  "just  growed."  Beginning  as  a 
voluntary  association  of  a  few  business  men,  it  was  at  first 


38   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

merely  a  sort  of  headquarters  for  anybody  interested  in  local 
and  general  commercial  and  financial  matters.  It  was  not  a 
market.  In  fact,  at  the  early  meetings  much  attention  was 
given  to  the  fundamental  economic  issues  of  transportation 
and  banking,  both  of  which  institutions  were  sadly  inade- 
quate in  the  fast  growing  village.  As  railroads  were  secured, 
superseding  the  canal  and  supplementing  the  lake,  and  as  a 
sound  banking  system  was  painfully  achieved,  the  Board 
narrowed  its  interests  primarily  to  market  problems.  The 
first  Preamble  to  the  Board's  Rules  stated  the  objects  of  the 
Board  in  these  terms:  " Having  a  desire  to  advance  the 
commercial  character,  and  promote  the  manufacturing 
interests  of  the  City  of  Chicago.  .  .  .  "and  so  on.  However, 
in  seeking  to  reform  the  wildcat  banking  system  prevailing 
before  the  Civil  War,  the  Board  found  considerable  opposi- 
tion. A  sound  banking  scheme -was  submitted  to  the  State 
Legislature,  in  the  form  of  a  General  Banking  Act,  but  so 
violent  was  the  opposition  encountered,  particularly  from 
farmers,  that  the  measure  was  dropped.  The  early  historian 
of  the  Board  states  that  ''Farmers  as  a  class  lent  a  willing 
ear  to  the  misrepresentations  so  industriously  circulated  by 
certain  newspapers." 

The  Board,  as  stated  above,  gradually  narrowed  its 
activities  to  current  market  problems.  Various  articles 
came  to  be  traded  in,  among  which  were  the  following: 
flour,  grain,  dressed  hogs,  lard,  hides,  high  wines,  whisky. 
By  1856  the  Board  had  become  a  Grain  Exchange,  plus 
trading  in  so-called  provisions — salt  pork,  lard,  short  ribs. 
The  various  important  historical  features  of  the  Board  are 
best  taken  up  for  discussion,  one  by  one,  in  topical  order. 

(1)  Membership. — When  the  Board  began  as  a  volun- 
tary association  it  was  open  to  "  members  and  strangers 


THE  CHICAGO  BOARD  OF  TRADE  39 

introduced  by  them."  This  western  hospitality  to  strangers, 
however,  was  found  incompatible  with  the  Board's  avowed 
purpose  of  "inculcating  just  and  equitable  principles  in 
trade,  establishing  and  maintaining  uniformity  in  the  com- 
mercial usages  of  the  city.  .  .  .  and  avoiding  and  adjusting, 
as  far  as  practicable,  the  controversies  and  misunderstand- 
ings which  are  apt  to  arise  between  individuals  engaged  in 
trade  when  they  have  no  acknowledged  rules  to  guide  them." 
The  present  set  of  rules  attest  the  high  ethical  code  of  com- 
mercial conduct  imposed  upon  the  members  of  the  Board. 
And  since  only  members  could  be  controlled  by  the  rules,  it 
quite  early  became  necessary  to  limit  trading  on  the  floor  of 
the  Exchange  to  members  only.  The  "  stranger  "  who  wishes 
to  trade  must  trade  through  the  member  in  good  standing. 
No  discrimination  is  made  against  farmers'  companies  seek- 
ing to  join. 

(2)  Weighing,  Inspection,  Grading. — "The  development 
of  the  system  of  grading  and  of  elevator  receipts  is  the  most 
important  step  in  the  history  of  the  grain  trade,"  says 
Emery,  the  recognized  American  authority  on  that  subject.* 
And  the  Chicago  Board  of  Trade,  in  pursuing  a  policy  of 
enlightened  self-interest,  has  contributed  more  than  any 
other  one  factor  to  the  growth  in  America  of  standard  weigh- 
ing, inspecting,  and  grading  systems  for  grain.  In  the 
original  charter  of  the  Board,  we  find  this  important  grant 
of  power: 

"Section  10.  Said  corporation  shall  have  power  to 
appoint  one  or  more  persons,  as  they  may  see  fit,  to  examine, 
measure,  weigh,  gauge,  or  inspect  flour,  grain,  provisions, 
liquor,  lumber,  or  any  other  articles  of  produce  or  traffic 

*  Emery,  H.  C.,  Speculation  on  the  Stock  and  Produce  Exchanges  of 
the  United  States,  p.  38 


40   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

commonly  dealt  in  by  the  members  of  said  corporation;  and 
the  certificate  of  such  person  or  inspector  as  to  the  quality 
or  quantity  of  any  such  article,  or  their  brand  or  mark  upon 
it,  or  upon  any  package  containing  such  article,  shall  be  evi- 
dence between  buyer  and  seller  of  the  quantity,  grade,  or 
quality  of  the  same,  and  shall  be  binding  upon  the  members 
of  said  corporation,  or  others  interested,  and  requiring  or 
assenting  to  the  employment  of  such  weighers,  measurers, 
gaugers,  or  inspectors;  nothing  herein  contained,  however, 
shall  compel  the  employment,  by  any  one,  of  any  such  ap- 
pointee." 

The  system  of  handling  grain  in  America  by  the  measured 
bushel,  instead  of  by  weight,  continued  many  years  after  its 
unwisdom  was  generally  recognized.  The  writer  recalls  very 
vividly  the  time  when  as  a  boy  he  used  to  "hold  sacks"  at 
the  thrashing  machine,  while  a  man  carefully  lifted  the  over- 
flowing half-bushel  measures  of  wheat,  past  the  registering 
meter,  and  poured  them  into  the  grain  sack.  How  awkward, 
how  expensive,  how  inaccurate  the  process!  And  sometimes 
the  farmer  measuring  his  own  grain  would  forget  to  click  the 
meter  (the  black  sheep  in  the  grain  trade  are  not  all  "middle- 
men"). The  modern  thrashing  machine  dispenses  with  this 
man  and  this  boy,  and  measures  its  own  grain  by  weight. 

When  the  Chicago  Board  of  Trade  began  to  load  Lake 
vessels  by  weight,  it  encountered  opposition  from  both 
Buffalo  and  New  York.  But  in  the  end  this  reform  was 
forced  on  the  eastern  markets,  and  led  to  the  present 
uniform  system  of  the  grain  trade  of  selling  by  weight. 

The  Weighing  Department  of  the  Board  of  Trade  is  now 
one  of  the  important  parts  of  the  Board,  comprising  about 
150  persons,  and  representing  an  annual  expenditure  for  all 
purposes  of  about  $300,000.  Approximately  600,000,000 


THE  CHICAGO  BOARD  OF  TRADE  41 

bushels  of  grain  are  weighed  (receipts  and  shipments)  each 
year.  The  weighing  charges  are  fixed  by  the  Board  and  vary 
with  the  character  of  the  service  performed,  ranging  from 
twenty  cents  per  thousand  bushels  for  weighing  in  and  out 
of  vessels,  to  from  fifty  cents  to  two  dollars  per  car  for  grain 
in  bulk,  depending  on  location.  Chicago  weights  are  now 
accepted  universally  by  the  grain  trade  as  standard.  To  the 
country  shipper  of  this  grain  this  means  a  protection  in  all 
cases  of  filing  claims  for  shortage  against  transportation 
companies. 

Inspection  and  grading  came  up  for  discussion  at  the 
first  meeting  the  Board  ever  held.  Inspectors  of  fish  and 
provisions  were  appointed — an  important  step  at  that  time 
towards  securing  uniformity  in  grades  and  in  guaranteeing 
quality. 

Grain  inspection  was  foreshadowed  in  an  article  in  the 
Chicago  Democrat  of  October  11,  1843,  quoting  these  words 
from  the  Buffalo  Economist: 

"We  all  know  its  good  quality  (i.  e.,  Chicago  wheat),  but 
there  is  some  poor  raised  there  too,  and  some  farmers  are 
less  careful  than  others  to  keep  their  grain  clean.  If  good 
and  bad,  sand  and  clay,  are  all  thrown  into  a  vessel's  hold 
together,  it  cannot  be  very  satisfactory  to  those  who  buy  the 
cargo  for  clean  wheat " 

And  to  this  the  Democrat  adds, 

"There  can  be  no  doubt  but  the  course  of  our  merchants 
and  forwarders  in  mixing  various  kinds  of  wheat  has  in- 
jured our  farmers  much  by  keeping  prices  down." 

The  story  of  grain  inspection  in  Chicago  is  too  long  a 
story  to  tell  here,  and  hence  only  its  outlines  can  be  sketched, 
from  the  time  the  Board  of  Trade  made  the  beginning  of 
inspection,  till  the  State  of  Illinois  took  it  over  and  estab- 


42       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

lished  it  under  Civil  Service  rules.  And  the  long  struggle 
by  the  Board  for  effective  inspection  forms  part  of  its  greater 
and  longer  controversy  with  the  railroads  and  terminal  ele- 
vators for  satisfactory  warehousing  of  grain  and  the  correct 
method  of  dealing  with  warehouse  receipts. 

As  early  as  1851  we  see  evidence  of  the  forthcoming  fight. 
At  that  time  a  petition  was  circulated  among  the  produce 
dealers  graying  the  Legislature  to  pass  an  Act  "  prohibiting 
any  railroacl  company  from  engaging  in  the  storage,  coniT 
mission  or  produce  business/'  and  expressing  the  fear  that 
the  Railroad  is  planning  to  "  extend  to  this  city  a  gigantic 
monopoly,"  which  "said  company  has  established  in  a 
neighboring  state  and  city." 

Railroads  quite  naturally  built  terminal  storage  at  first, 
in  the  absence  of  existing  terminal  warehouses.  In  the  ab- 
sence of  public  regulation  of  railroads  (the  Interstate  Com- 
merce Act  was  not  passed  till  1887),  and  in  accordance  with 
business  ethics  and  business  standards  of  the  day,  certain 
serious  abuses  were  developed  by  the  railroad,  in  handling 
their  part  of  the  grain  trade.  These  serious  abuses  largely 
connected  themselves  with  the  Terminal  Elevator  problem, 
and  particularly  with  the  granting  of  rebates  and  privileges 
to  terminal  elevator  owners  or  lessors. 

The  Board  began  its  inspection  and  grading  activities  at 
the  very  outset,  before  the  power  was  formally  granted  to  it 
by  the  Charter  of  1859.  Thus,  in  1856  the  Board  passed  a 
resolution,  saying,  among  other  things,  "also  that  the 
Standing  Committee  be  directed  to  embody  in  the  agree- 
ment with  the  proprietors  of  grain  houses  anything  that 
in  their  opinion  will  promote  open,  straightforward,  fair 
dealing."  In  1858  grain  grades  were  formulated  anew, 
and  for  the  first  time  the  test  weight  per  measured 


THE  CHICAGO  BOARD  OF  TRADE  43 

bushel  was  introduced.  Thus  began  a  new  era  in  grain 
inspection. 

The  President  of  the  Board  at  this  time,  Mr.  Julian  S. 
Rumsey,  was  a  vigorous  advocate  of  reform.  Against  his 
reelection  a  campaign  was  waged  by  the  warehouses  and 
transportation  interests  opposed  to  strict  enforcement  of 
the  inspection  rules.  He  was  reflected,  showing  how  the 
majority  of  the  Board  stood  on  this  question. 

The  minutes  of  the  meetings  of  the  Board  of  Directors 
from  this  date  or  till  the  election  of  Hiram  Sager  as  Presi- 
dent for  a  second  term  in  1908,  are  the  story  of  continuous 
and  sustained  effort  by  the  majority  to  compel  a  powerful 
minority  to  observe  open  and  fair  methods  of  business  in 
dealing  with  the  public  and  with  their  fellow  members. 
Apparently,  by  1908,  the  majority  had  won  its  victory.  This 
is  an  indication  of  how  vital  a  matter  weighing,  inspection, 
grading,  and  warehouse  receipts  are  understood  by  the 
Board  to  be. 

In  1861  the  Board  was  stirred  by  general  complaints  of 
laxity  in  inspection  and  of  fraud  on  the  part  of  the  terminal 
elevator  owners.  A  committee  reported  on  this  subject  early 
in  1862,  recommending  that  all  grain  bagged  on  the  track 
should  be  refused  admission  to  the  regular  warehouses,  and 
that  the  names  of  any  members  guilty  of  frauds  should  be 
posted  on  the  bulletin  board  together  with  a  statement  of 
the  facts  of  the  case.  The  members  adopted  this  report,  and 
the  warehousemen  pledged  themselves  to  observe  the  new 
rules.  However,  complaints  continued.  There  were  charges 
of  mixing  grain,  unfairness,  discriminations  and  fraud  in 
connection  with  grain  warehousing. 

The  tense  situation  was  summed  up  by  the  Chicago 
Tribune  (of  January,  1867)  in  these  Words: 


44   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

Facts,  charges,  surmises  and  suspicions  show  that,  as  at  present 
conducted,  the  grain  trade  of  the  Northwest  is  demoralized.  It 
abounds  in  abuses  which  vex  and  defraud  every  honest  dealer,  and 
inflict  great  harm  upon  our  city.  We  think  the  question  is  a  proper 
one  for  our  Legislature  to  consider,  and  we  are  in  favor  of  legislative 
enactments,  whereby  these  evils  shall  be  mitigated  if  not  entirely 
removed.  First,  let  the  Legislature  pass  a  law  compelling  all  rail- 
roads to  give  a  specific  receipt  for  the  number  of  pounds  of  grain 
shipped  in  bulk.  This  will  determine  where  the  leakage  is  if  there  be 
any.  Second,  compel  the  railroads  to  deliver  grain  at  any  warehouse 
specified  by  the  shippers,  if  there  be  a  railroad  track  to  it,  whether 
the  same  belong  to  it  or  any  other  railroad.  This  will  break  down 
the  monopoly  which  now  exists,  and  open  up  the  elevator  business  to 
competition.  Third,  adopt  a  uniform  grade  of  inspection  through- 
out the  state  making  weight  one  of  the  essentials  and  taking  for  a 
basis  the  grades  adopted  by  our  Board  of  Trade,  which  may  be 
vested  with  discretionary  power  to  change  the  same,  when  the 
nature  of  the  condition  of  the  crop  demands  it.  Fourth,  the  rail- 
road agents  who  receipt  for  the  grain  on  the  cars  to  specify  the 
grade  in  the  receipt.  If  legislation  can  reach  the  evils  complained  of, 
this  is  the  way  to  do  it,  and  no  honest  man  can  object  to  such  a  law. 

The  present  accepted  idea  that  a  public  grain  elevator  is 
a  public  utility  and  hence  subject  to  public  regulation  was  of 
course  not  in  force  at  the  time  of  the  early  struggle  of  the 
Board  with  the  warehouse  problem.  Not  till  the  new  Illi- 
nois Constitution  of  1870  made  the  warehouses  subject  to 
public  regulation  did  the  warehouses  definitely  assume  the 
legal  status  which  they  now  hold.  The  Board  of  Trade,  at 
its  meeting  July  1,  1870,  passed  a  resolution  urging  all  mem- 
bers to  work  and  vote  for  the  new  constitution. 

The  Board  of  Trade  Inspection  service  at  this  juncture 
received  a  black  eye  from  which  it  never  recovered.  In  the 
year  1870  a  cargo  of  grain  was  inspected  out  for  Buffalo  and 


THE  CHICAGO  BOARD  OF  TRADE  45 

was  graded  as  No.  2  oats  under  the  Board  inspector's  certifi- 
cate. This  cargo  contained  a  mixture  of  27,700  bushels  No.  2 
white  oats  and  8000  bushels  of  barley  (part  No.  3  and  part 
rejected).  The  Board  had  a  trial  in  the  matter  and  removed 
the  inspector  and  suspended  a  director  who  was  a  member  of 
the  inspection  committee.  However,  in  April,  1871,  the 
State  of  Illinois  passed  the  famous  Warehouse  Law,  taking 
inspection  of  grain  out  of  the  hands  of  the  Board,  and  plac- 
ing it  in  charge  of  thefRailroad  and  Warehouse  Commission, 
where  it  has  since  remained.  In  1916  the  United  States  Con- 
gress passed  an  Act  providing  for  federal  supervision  of  the 
existing  inspection  systems  of  the  country,  and  providing  for 
federal  grades  for  grain. 

The  weighing  of  grain  by  the  Board  of  Trade  of  Chicago 
was  not  disturbed  by  the  1871  Warehouse  Act.  The  Board 
of  Trade  also  continues  to  take  samples  of  grain  from  cars  in 
Chicago,  for  purpose  of  comparison  with  state  samples,  in 
order  to  determine  whether  or  not  reinspection  should  be 
asked  for.  The  State  reinspects  samples  upon  formal  re- 
quest. Appeals  may  be  taken  from  the  state  inspector  to  the 
federal  grain  supervisors. 

Captain  Charles  H.  Taylor,  the  historian  of  the  Board, 
sums  up  its  work  in  this  field  as  follows : 

"  The  epoch-making  requirements  for  the  grading,  weighing, 
storage  and  shipment  of  grain  in  bulk,  which  were  adopted 
early  in  the  Board's  history,  and  contributed  so  largely  to  its 
supremacy  in  this  department  of  commerce,  were  prompted  by 
this  motive  (fair  dealing),  and  the  same  is  true  of  the  long 
fight  to  compel  railway  companies  to  discontinue  the  practice 
of  granting  unfair  freight  rates  to  certain  favored  shippers."* 

*  Taylor,  Charles  H.  (Editor)  History  of  the  Chicago  Board  of 
Trade.  3  Vols.  Vol.  I,  p.  6. 


46   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

(3)  Cash  Grain.— Little  need  be  said  about  the  evolution 
of  the  cash  grain  business,  except  the  successful  work  done 
•by  certain  individual  members  of  the  Board  in  helping 
break  the  monopoly  in  the  country  elevator  situation.  All 
thoughtful  persons  who  are  familiar  with  the  history  of  the 
grain  trade  in  the  United  States  know  that  the  country  ele- 
vators, particularly  in  the  States  of  Illinois,  Iowa  and  Ne- 
braska, prior  to  the  year  1901,  were  in  the  grip  of  a  monopoly 
which  fixed  prices.  The  price  fixing  was  done  through  the 
organization  of  grain  elevators  known  as  the  State  Grain 
Dealers'  Association,  but  in  which  organization  a  few  power- 
ful terminal  houses — either  terminal  elevators  or  line  eleva- 
tor companies  or  both — completely  dominated.  Thus,  in 
Nebraska,  the  State  was  mapped  and  divided  into  thirteen 
districts,  as  a  basis  of  price-fixing.  In  Iowa  the  price-fixing 
was  done  through  the  Secretary  with  his  head  office  in  Des 
Moines.  Any  man  or  woman  starting  an  independent 
elevator  was  forced  to  pay  the  so-called  "  regular"  price,  or 
bo  driven  out  of  business.  Farmers,  sensing  the  situation 
and  resenting  it,  began  to  build  farmers'  elevators.  The 
organization  declared  them  " irregular"  and  took  steps  to 
force  them  to  behome  "  regular"  or  give  up  their  existence. 

An  interesting  sidelight  on  this  situation  is  contained 
in  a  certain  volume  of  testimony  taken  by  the  Interstate 
Commission,  in  the  year  1906,  on  the  Relations  of  Common 
Carriers  to  the  Grain  Trade. 

The  following  quotation  is  from  the  testimony  of  Mrs. 
Kate  A.  Kehoe  of  Platte  Center,  Nebraska,  who  had  en- 
deavored to  continue  the  operation  of  a  country  elevator  and 
implement  business  after  the  death  of  her  husband. 

Mr.  Marble  (for  the  Commission):  You  refused  to  buy  some- 
times? 


THE  CHICAGO  BOARD  OF  TRADE  47 

Mrs.  Kehoe:  Very,  very  frequently. 

Mr.  Marble:  You  maintained  yourself  with  the  implement  busi- 
ness? 

Mrs.  Kehoe;  Yes;  when  I  could  not  handle  the  grain  business  at 
a  margin,  I  let  it  go. 

Mr.  Marble :  If  you  had  been  dependent  on  the  grain  business  for 
a  living  could  you  have  remained  in  that  town? 

Mrs.  Kehoe:  No,  sir. 

Mr.  Marble:  Did  you  have  difficulty  in  getting  a  market  for  the 
grain  you  bought? 

Mrs.  Kehoe:  At  one  or  two  special  times  I  did.  That  was  when 
the  grain  dealers'  association  was  in  force.  I  did  not  belong  to  it. 

Mr.  Marble:  What  difficulty  did  you  have? 

Mrs.  Kehoe:  I  would  not  receive  the  offers  or  bids. 

Mr.  Marble :  No  one  would  bid  for  your  grain? 

Mrs.  Kehoe:  No. 

Mr.  Marble:  No  one  at  all? 

Mrs.  Kehoe:  At  one  particular  period  I  got  all  my  prices  from 
Chicago  by  wire. 

Mr.  Marble:  You  depended  on  the  Chicago  market? 

Mrs.  Kehoe:  Yes,  sir. 

Mr.  Marble:  And  could  not  get  bids  from  Omaha? 

Mrs.  Kehoe:  None  at  all.* 

It  should  be  added  in  this  connection  that  this  happened 
before  the  Omaha  Grain  Exchange  was  established,  and  that 
the  leaders  in  this  fight  on  "irregular"  houses  were  also 
opposed  to  the  organization  of  a  Grain  Exchange  at  Omaha. 

In  the  same  hearings  conducted  by  the  Interstate  Com- 
merce Commission,  Mr.  E.  G.  Dunn  of  Swaledale,  Iowa,  a 

*  Testimony  taken  by  Interstate  Commerce  Commission,  October 
5— November  23,  1906,  in  matter  of  Relations  of  Common  Carriers  to  the 
Grain  Trade,  59th  Congress,  Second  Session.  Senate  Document  278, 
Washington,  1907. 


48   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

traveling  solicitor  for  the  firm  of  Eschenburg  and  Dalton  of 
the  Chicago  Board  of  Trade  testified  that  the  Des  Moines 
Secretary  of  the  Iowa  Grain  Dealers'  Association  had  put  out 
a  letter  condemning  the  Eschenburg  and  Dalton  firm  for 
supporting  farmers'  elevators,  and  asking  the  "regulars"  of 
Iowa  not  to  consign  grain  to  this  firm.  The  firm  of  Eschen- 
burg and  Dalton  was  an  old,  well-established  firm  of  cash 
grain  receivers,  and  could  ill  afford  to  risk  their  patronage. 
Nevertheless  they  stood  by  the  few  farmers'  elevators  that 
had  started  in  business.  The  attack  on  this  firm's  business, 
testified  Dunn,  caused  its  list  of  Iowa  customers  to  shrink 
from  200  to  3.  Faced  with  this  emergency,  the  firm  began  a 
vigorous  campaign  of  organizing  more  farmers'  elevators 
throughout  Iowa.  Mr.  Dunn,  who  had  considerable  force 
as  a  persuasive  orator,  stirred  the  farmers  into  activity  and 
very  soon  a  large  number  of  farmers'  elevators  were  organ- 
ized. 

Similar  tactics  were  used  by  the  " regular"  associations  of 
Iowa  and  Illinois  to  compel  the  young  grain  firm  of  Lowell 
Hoit,  Chicago,  to  refrain  from  doing  business  with  farmers' 
elevators,  and  this  firm  also  carried  the  battle  back  to  the 
country  and  organized  more  farmers'  elevators. 

The  following  are  samples  of  two  letters,  quoted  from  the 
testimony  above  mentioned,  showing  how  pressure  was 
applied  to  the  Chicago  firms: 


THE  CHICAGO  BOARD  OF  TRADE  49 

(Copy) 

ILLINOIS  GRAIN   DEALERS'  ASSOCIATION 

Secretary's  Office,  Foray th,  111. 

October  7,  1902. 
Lowell  Hoit  &  Company, 
Gentlemen : — 

I  am  told  that  you  are  bidding  on  irregular  firm  at  Howard, 
Illinois.    I  presume  you  supposed  them  to  be  regular. 

I  am 

Very  truly  yours, 

(Signed)  H.  C.  Mowry,  Sec'y. 


DCS  Moines,  Iowa,  September  22,  1903. 
Lowell  Hoit  &  Company. 
Chicago,  111. 
Gentlemen : — 

I  wish  to  advise  you  that  F.  M.  Terry,  of  River  Sioux,  has  no 
facilities  for  handling  grain  and  is  not  recognized  as  a  dealer  by  this 
association. 

Will  you  please  advise  me  what  your  disposition  is  in  regard  to 
doing  business  with  shippers  who  have  no  facilities?  Not  hearing 
from  you  I  shall  conclude  that  you  are  disposed  to  take  business 
from  scoop  shovel  shippers  and  will  be  compelled  to  advise  our  mem- 
bers of  the  facts. 

Yours  truly, 

(Signed)  Geo.  A.  Wells,  Secretary. 


50       SPECULATION    AND    THE    CHICAGO    UOAKJj    OF    THADE 

(Copy) 

Des  Moines,  Iowa,  Aug.  31,  1904. 
Confidential 
To  Members: — 

Will  you  please  correspond  with  Lowell  Hoit  &  Company, 
Chicago,  Illinois,  with  a  view  to  giving  them  some  shipments.  They 
are  taking  business  from  farmers'  elevator  companies  not  recog- 
nized by  this  association,  and  I  find  that  they  are  not  getting  any 
business  from  regular  dealers. 

My  purpose  is  thus  to  place  them  under  sufficient  obligation  to 
the  members  of  this  association,  so  that  they  will  consider  it  for 
their  best  interest  to  confine  their  dealings  in  the  future  to  the  firms 
that  are  recognized. 

Do  not  raise  the  question  about  the  farmers'  elevator  com- 
panies in  your  first  letter,  but  take  that  up  with  them  later,  after 
having  given  them  some  business.  Please  keep  this  matter  con- 
fidential and  advise  of  your  actions  and  results. 

Please  answer  questions  in  blank  form  given  below,  detach,  and 
return  same  to  me  at  once. 

Yours  truly, 

(Signed)  Geo.  A.  Wells,  Secretary. 
Blank  Form — in  part  as  follows: 

Have  you  done  any  business  with  firms  named  below  during  the 
past  year,  to  wit: 

Hateley  Brothers,          Chicago,  111.     Ans. — 

Eschenburg  &  Dalton,  Chicago,  111.     Ans. — 

Lowell  Hoit  &  Co.,        Chicago,  111.    Ans. — 


These  quotations  are  given  at  length — they  form  but  a 
small  fraction  of  the  published  testimony — because  they 
illustrate  the  sometimes  neglected  point  that  the  central, 
organized  market  has  given  the  farmer  substantial  protec- 


THK    (  FIK'AdO    HOARD    OF    TRADE  51 

(ion  in  time  of  dire  need.  At  the  present  time  50  per  cent  of 
the  grain  arriving  at  Chicago  comes  from  farmers'  elevators; 
only  5  1/2  per  cent  comes  from  line  elevators.  The  balance 
comes  from  independent  elevators  and  interior  cities. 

(4)  To  Arrive  Grain. — The  practice  of  buying  grain  "to 
arrive"  is  older  than  the  Exchange  itself.  It  is  one  method 
of  making  "forward-contracts"  which  seems  to  have  been  in 
use,  to  a  limited  extent,  in  our  eastern  markets  from  the  time 
of  the  Revolutionary  War  on.  As  soon  as  Chicago  became 
a  grain  market  this  method  of  dealing  came  into  vogue. 
Thus  the  local  papers  of  September  2,  1848,  quote  corn  at 
37  to  38  cents,  "at  which  price  contracts  have  been  made  to 
deliver  within  a  short  time." 

The  Chicago  Daily  Journal  of  April  21,  1848,  quotes  a  sale 
of  corn  to  arrive.  Several  to  arrive  sales  are  reported  for 
May.  Most  of  the  corn  arriving  at  Chicago  during  Septem- 
ber, 1848,  was  on  to  arrive  contracts. 

On  August  25,  1849,  the  Chicago  market  report  told  of 
poor  crops,  rust  damage  to  wheat,  etc.,  and  quoted  choice 
samples  of  winter  wheat  selling  at  95  cents  to  arrive.  Own- 
ers with  grain  in  store  along  the  Illinois  river  or  the  Canal 
made  a  common  practice  of  selling  this  grain  to  arrive  in 
Chicago.  When  storage  facilities  increased  in  Chicago, 
and  particularly  when  the  great  Terminal  Elevator  Com- 
panies came  into  power,  the  reasons  for  buying  to  arrive  in- 
creased. This  ultimately  led  to  a  long  controversy  on  the 
Board  and  in  the  courts,  over  the  "Call  Rule"  question. 

The  Call  Rule. — Manifestly  the  owner  of  storage  could 
safely  send  out  large  bids  to  the  country  for  "to  arrive" 
grain,  knowing  that  he  could  at  least  have  facilities  for 
storing  it.  Whereas,  a  dealer  in  cash  grain,  depending  for 
an  outlet  on  eastern  .mills,  for  instance,  must  be  limited  in 


52       SPECULATION    AND    THE    CHICAGO    BOARD    OF    TRADE 

his  "to  arrive"  buying  to  actual  orders  in  hand.  It  is  ob- 
vious that  such  a  situation  would  put  into  the  hands  of  the 
small  group  of  Terminal  Elevator  owners  a  larger  control  of 
the  cash  grain  market  than  that  held  by  the  receivers  and 
shippers  who  depended  in  part  on  receiving  consigned  grain 
and  in  part  on  receiving  buying  orders  from  eastern  con- 
sumptive buyers.  To  preserve  a  competitive  market  and  to 
preserve  the  protection  to  the  country  shipper  furnished  by 
the  receivers  and  shippers  (cash  grain  commission  mer- 
chants), the  so-called  "Call  Rule"  was  adopted  in  the  year 
1906.  Prior  to  this  time  some  of  the  large  terminal  houses 
were  making  secret  bids  by  wire  to  the  country,  overnight, 
for  grain  to  arrive.'  The  Call  Rule  put  an  end  to  secret  bids. 
One  bid  was  established  by  an  open,  competitive  call  at  the 
close  of  each  day's  trading,  and  this  official  bid  price  held 
good  overnight,  or  until  the  opening  of  the  Exchange  next 
morning.  Any  one  was  free  to  bid  for  any  quantity  of  grain 
to  arrive,  at  this  price.  This  rule  was  attacked  in  the  Courts, 
under  the  Sherman  Anti-Trust  Law,  as  being  in  restraint  of 
competition.  It  was  defended  by  the  Board  as  preventing 
concentration  of  the  grain  trade  in  few  hands  and  in  keeping 
alive  competition.  The  testimony  of  the  country  grain 
trade  proved  the  Board  had  the  facts  on  its  side.  The  Su- 
preme Court  of  the  United  States  early  in  the  year  1918 
handed  down  a  decision  upholding  the  Call  Rule  of  the 
Board. 

When  the  Call  Rule  was  under  fire  by  the  Courts,  the 
Board  adopted  a  modified  rule  governing  the  to  arrive  busi- 
ness. On  October  6,  1913,  this  new  rule  went  into  effect, 
permitting  any  house  to  bid  the  country  overnight  any  price 
for  to  arrive  grain,  provided  only,  that  a  notice  of  such  bid 
be  sent  to  a  "reasonable  number"  of  competing  firms  (who 


THE  CHICAGO  BOARD  OF  TRADE  53 

may  offer  the  grain  themselves  at  the  bid  price),  and  that  a 
notice  of  the  bid  and  a  list  of  the  notified  firms  be  filed  in  the 
office  of  the  Secretary  of  the  Board.  Each  competing  firm  in 
turn  notifies  the  Secretary's  office  of  its  receipt  of  the  to 
arrive  bid,  and  in  this  manner  the  Secretary  is  able  to  check 
up  and  determine  how  faithfully  the  rule  is  obeyed.  In 
practice  the  large  Terminal  Elevators — the  principal  buy- 
ers— notify  from  twenty  to  thirty  firms.  These  firms,  then 
in  turn,  bid  the  country  overnight  on  the  basis  of  the  "firm 
bid  "  which  they  have  received.  During  trading  hours  on 
the  floor,  any  firm  may  bid  the  country  any  price  for  to 
arrive  grain,  all  such  bids  being  immediately  posted  on  a 
large  blackboard  so  that  the  price  is  an  open,  competitive 
one.  The  country  shipper  of  course  follows  his  own  prefer- 
ence in  shipping  grain  on  consignment  or  on  to  arrive  sales. 
What  he  actually  does  do  depends  on  condition  of  crops, 
weather,  prices,  market  tendencies,  and  the  car  shortage 
problem.  In  some  seasons  to  arrive  selling  is  preferred  by 
country  shippers;  in  others,  consignment. 

(5)  Future  Trading. — Future  trading  on  the  Chicago 
Board  of  Trade  has  had  two  periods  of  growth,-  namely  (1) 
before  the'Civil  War;  and  (2)  after  the  Civil  War.  The  days 
before  the  war  were  days  of  a  small  volume  of  future  trading; 
the  days  since  the  war  may  be  called  a  time  of  a  large  volume 
of  future  trading. 

Future  trading,  in  its  smaller  scope,  has  its  definite 
beginning,  in  the  to  arrive  grain  business.  This  was  clearly 
foreshadowed  in  the  preceding  discussion  of  to  arrive  grain. 
As  further  illustrating  the  early  method  of  to  arrive  trading, 
leading  to  ordinary  future  trading  as  now  known,  attention 
may  be  called  to  the  situation  in  Chicago  in  the  spring  of 
1856 — a  typical  condition.  On  April  1,  1856,  Chicago  had 


f>  I        SI-KCTLATIOX    A.VD    THE    CHICAGO    BOAKD    OF    TRADE 

in  store  447,000  bushels  of  grain,  while  boats  with  a  capacity 
of  1,500,000  bushels  were  waiting  in  the  harbor  for  a  cargo. 
Grain  was  stored  in  the  country,  along  the  canal  and  the 
Illinois  river.  By  the  end  of  February  100,000  bushels  of 
this  grain  had  been  sold  for  spring  delivery,  May  being  the 
favorite  month  of  shipment.  To  further  illustrate  the  origin 
and  growth  of  future  trading,  a  few  concrete  examples  may 
}>e  given  from  the  Board's  early  history. 

The  year  1851  was  noted  as  a  year  showing  a  marked  in- 
crease in  the  quantity  of  corn  sold  for  future  delivery,  par- 
ticularly in  March  and  April  for  June  delivery. 

During  1853  corn  and  oats  were  sold  very  commonly  for 
future  delivery,  mainly  to  arrive,  from  Canal  and  River 
points. 

During  1854  there  was  an  increasing  amount  of  selling  for 
future  delivery.  The  Crimean  War  introduced  a  new  specu- 
lative factor  in  the  market.  New  Orleans  at  this  time  was 
also  making  forward  contracts,  for  the  local  papers  of  Jan- 
uary 13  reported  contracts  for  150,000  bushels  of  corn  deliv- 
erable in  March  and  April.  The  Chicago  Democratic  Press 
of  January  31  said,  "There  is  a  strong  disposition  to  operate 
for  future  delivery  here  and  elsewhere  on  the  part  of  the 
buyers,  but  holders  in  store  are  extremely  sanguine  and 
quiet."  The  same  paper  on  March  12  reported  the  arrival 
of  70,000  bushels  of  corn  in  the  last  three  days,  adding  ' '  1  >y 
far  the  greater  proportion  is  for  shipment  on  contracts  al- 
ready made."  The  St.  Louis  Evening  News  at  this  time,  us 
quoted  in  The  Chicago  Journal  of  March  29,  1854,  said: 

Wheat  contracts,  flour  contracts,  and  purchases  of  corn,  weeks  and 
months  since,  during  the  inflation,  are  beginning  to  mature  and  some 
to  fall  through,  as  they  usually  do  when  there  is  a  sudden  depres- 
sion or  inflation  in  prices.  .  .  .  We  have  seen  during  the  past  few 


THE  CHICAGO  BOARD  OF  TRADE  55 

weeks  heavy  arrivals  of  flour,  grain,  provisions,  etc.,  which  were 
bought  during  high  prices,  received  and  paid  for  cheerfully.  .  .  . 
The  truth  is,  it  requires  considerable  moral  honesty  and  a  fair  share; 
of  mercantile  integrity  to  receive  and  pay  for  large  purchases  of 
grain  which  have  declined  from  25  to  35  cents  per  bushel,  and  flour 
which  has  slipped  down  $1.00  to  $1.50  per  barrel,  but  nevertheless  it 
is  done,  we  may  say  daily  and  hourly  in  this  city. 

The  Journal  of  April  21  made  note  of  a  future  contract  for 
100,000  bushels  of  corn  at  50  cents,  delivery  in  July  on  board 
a  vessel;  the  purchaser  had  just  sold  out  half  his  contract  to 
New  York  parties  at  a  profit  of  $3000. 

There  is  no  evidence  that  there  was  a  class  of  dealers 
giving  their  whole  time  to  speculation,  at  this  period.  How- 
ever, the  evidence  does  indicate  that  most  of  the  dealers 
themselves  were  also,  at  times,  speculators.  Uncertainties 
as  to  arrivals,  as  to  weather  conditions,  as  to  movement  of 
lake  shipping,  as  to  foreign  markets  and  other  factors,  sub- 
jected the  market  to  more  severe  fluctuations  than  is 
the  case  at  present.  And  wide  fluctuations  in  turn  begot 
speculation. 

At  this  early  period  there  was  also  future  trading  in  grain 
in  New  York,  St.  Louis,  New  Orleans,  Milwaukee  and 
Buffalo.  But  it  was  in  Chicago  that  this  form  of  trading  in- 
creased and  grew  to  large  proportions. 

The  Chicago  Democratic  Press  of  June  4,  1856,  reported 
that  the  great  bulk  of  the  transactions  in  corn  were  for  fu- 
ture delivery.  "Contracts  are  almost  daily  maturing,"  says 
this  journal.  This  indicates  that  there  were  no  fixed  months 
for  deliveries,  as  at  present. 

Short  Selling. — Most  of  the  forward  contracts  for  de- 
livery of  grain  were  made  by  parties  owing  the  grain.  How- 
ever, more  and  more  the  practice  developed  of  contracting 


56   SPECULATION  AND  THE  CHICAGO  BOAKD  OF  TRADE 

to  deliver  grain  which  the  seller  did  not,  at  the  time,  own — 
i.  e.j  short  selling.  Some  evidence  of  these  "bear  operators" 
may  be  interesting. 

In  1850  an  abundant  corn  crop  depressed  the  market  from 
52  cents  to  31-35  cents.  In  the  face  of  this  big  crop,  a 
"bear,"  on  October  18,  sold  30,000  bushels  for  delivery  next 
June  at  28  cents.  This  bear  apparently  lost  seven  cents  a 
bushel,  although  by  November,  1851,  the  price  had  fallen  to 
26  cents. 

The  Chicago  Journal  of  May  13,  1853,  reports:  "High 
price  of  corn  is  due  to  scarcity  of  boats  on  the  Canal,  ren- 
dering parties  on  the  Illinois  River  unable  to  send  forward 
but  little  more  than  sufficient  to  supply  contracts  previously 
made  for  delivery  at  this  point.  In  some  cases  even  doubts 
are  entertained  of  the  ability  of  contracting  parties  to  fill 
engagements  against  the  time  stipulated  for,  and  some  spec- 
ulative feeling  has  been  observable  in  consequence." 

The  Chicago  Democratic  Press  in  1856  (June  11)  stated, 
"Thus  far  sellers  have  made  all  the  money  at  the  expense  of 
the  buyers."  That  week,  wheat  had  declined  18  to  20  cents  a 
bushel.  The  buyers  were  limited  to  "one  or  two  shorts, 
who,  having  sold  largely  last  week  at  higher  prices  are  now 
advantageously  providing  for  their  contracts." 

This  same  year,  1856,  affords  a  good  illustration  of  a  very 
modern  method  of  settling  contracts.  "A  single  lot  of 
15,000  bushels,"  says  the  Press  of  August  1,  1856,  "Jjas 
within  two  days  passed  through  fourteen  hands,  and  in  these 
transfers  settled  contracts  for  some  200,000  bushels." 

The  second  period  of  future  trading,  the  period  of  big 
volume,  dates  from  the  Civil  War.  The  cause  of  the  large 
increase  in  future  trading  was  due  to  the  practice  of  the 
Quartermaster's  Department  of  the  United  States  Army  in 


THE  CHICAGO  BOARD  OF  TRADE  57 

buying  large  orders  of  oats  for  future  delivery.  The  Govern- 
ment used  the  speculative  market  to  avoid  speculation — to 
have  a  definite  supply  of  a  definite  grade  at  a  definite  price. 
Without  definite  grades  there  could  of  course  be  no  future 
trading  in  grain.  And  evidently,  by  the  time  of  the  Civil 
War,  the  Board  of  Trade  had  put  inspection  and  grading  on 
a  workable  basis. 

First  Rules  on  Future  Trading. — That  future  trading 
was  a  voluntary  and  spontaneous  growth  in  the  grain  mar- 
ket of  Chicago  is  evidenced  by  the  fact  that  the  Board  had 
no  rules  on  the  subject  until  many  years  after  the  practice 
became  common,  or,  to  be  specific,  not  till  October  13,  1865. 
A  margin  rule  (requiring  ten  per  cent  margin)  had  been 
adopted  in  May,  1865,  but  no  comprehensive  rules  covering 
future  trading.  The  rules  adopted  in  October  merely  faced 
and  squarely  met  the  existing  situation.  Future  trading  was 
now  brought  under  fixed,  standard,  definite  and  public  rules. 
These  rules  covered  the  rights  of  parties  on  time  contracts, 
and  the  failure  to  deliver  on  contracts.  Future  trading 
proved  to  be  a  two-edged  sword  cutting  both  ways.  For  a 
time  in  the  earlier  years  of  its  growth,  the  abuse  of  it  threat- 
ened to  overshadow  the  use  of  it.  Some  highly  respected 
officers  and  members  of  the  Board  were  caught  in  squeezes 
and  market  manipulations  and  threatened  with  bankruptcy. 
For  some  years  a  commercial  "code  of  honor"  prevailed, 
like  the  old  code  duello,  to  the  effect  that  it  was  honorable 
to  manipulate  the  market  against  your  fellow  member,  but 
that  it  was  dishonorable  in  'him  to  refuse  to  settle  at  the 
fictitious  price.  This  code  of  honor  was  cloaked  behind  the 
ethical  claim  that  a  person  voluntarily  entering  upon  a  con- 
tract must  live  up  to  it.  However,  self-interest  led  the 
Board  to  take  in  hand  the  whole  question  of  Corners,  and  to 


58       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

evolve  rules  accordingly,  as  will  be  seen  in  the  discussion  of 
corners  just  below.  Among  other  abuses  which  the  "  black 
sheep  "  of  the  Board  introduced  quite  early  were  those  techni- 
cally known  as  bucketing  trades,  matching  trades,  and 
crossing  trades.  These  mean,  respectively  (1)  for  the  house 
to  take  the  other  side  of  its  customer's  trade,  instead  of 
executing  it  in  the  open  market :  (2)  for  the  house  to  put  the 
trade  of  one  customer  against  the  trade  of  another  customer, 
instead  of  executing  both  trades  in  the  open  market :  (3)  for 
one  house  to  turn  a  customer's  trade  (a  buying  order,  for 
instance)  over  to  a  second  house  in  exchange  for  a  trade 
made  by  a  customer  (a  selling  order)  of  the  second  house, 
instead  of  both  houses  executing  these  trades  in  the  open 
market.  A  Rule  was  adopted  prohibiting  all  three  of  these 
practices.  The  penalty  is  expulsion  from  membership. 
This  extreme  penalty  has  been  inflicted  at  different  times, 
and,  in  one  conspicuous  case,  upon  an  ex-president  of  the 
Board  of  Trade. 

The  Rules  governing  future  trading,  after  fifty  years  of 
growth  and  amendment  have  now  been  stabilized  to  meet 
the  needs  of  the  various  parties  immediately  concerned  in 
grain  marketing,  namely,  the  speculators,  the  hedgers,  the 
cash  grain  interests,  the  warehouse  interests  and  the  banks 
and  credit  interests. 

Credit,  Banking,  and  Future  Trading. — It  may  be  that 
in  an  ideal  condition  of  society,  there  will  be  no  credit  trans- 
actions, everything  being  on  a  strictly  cash  basis;  but  that 
question  cannot  be  discussed  here.  The  condition  which 
confronts  us  in  business  now  is  one  of  a  vast  and  ever  growing 
credit  structure.  And  in  the  grain  trade  credit  is  mobolized 
and  safeguarded  to  a  very  high  degree  of  business  efficiency. 

David  R.  Forgan,  President  of  the  National  City  Bank  of 


THE  CHICAGO  BOARD  OF  TRADE  59 

Chicago,  briefly  and  clearly  stated  the  relation  of  credit  to 
future  trading  in  these  words:* 

"  Warehouse  receipts  for  grain,  or  anything  else  that 
finally  becomes  human  food  are,  in  my  opinion,  the  best 
possible  collateral  for  bank  loans.  I  have  seen  the  time  more 
than  once  when  high  class  stocks  and  bonds,  and  even 
government  bonds,  could  not  readily  be  sold,  but  I  have 
never  seen  the  time,  nor  do  I  even  expect  to  see  it,  when  any- 
thing that  has  to  be  eaten  could  not  be  sold.  The  warehouse 
receipts,  therefore,  above  alluded  to,  constitute  a  collateral 
which  is  always  available  for  the  payment  of  debts.  Fur- 
thermore, if  the  grain  or  provisions  represented  by  the  ware- 
house receipts,  are  already  sold  for  future  delivery,  that  fact 
adds  a  great  element  of  strength  to  the  loan,  because  there  is 
a  third  party  obligated  to  take  the  grain  at  a  certain  time 
for  a  given  price.  When  I  lived  in  Minneapolis  I  had  the 
only  unpleasant  experience  I  have  ever  had  in  connection 
with  the  elevator  business.  A  terminal  elevator  concern 
filled  its  elevators  with  wheat,  and  thinking  that  the  market 
was  likely  to  go  up  they  did  not  hedge  it  by  selling  for  future 
delivery.  In  other  words  they  *  speculated  on  their  wheat. 
The  market  had  a  large  and  sudden  drop,  with  the  result 
that  the  elevator  concern  failed,  and  the  bank  with  which  I 
was  connected  made  a  loss.  The  present  method,  therefore, 
of  carriers  of  grain  or  provisions  selling  them  for  future  deliv- 
ery is  a  highly  satisfactory  one  to  the  banks  whose  money  is 
loaned  to  the  carriers.  The  sale  for  future  delivery  is  the 
final  link  in  the  chain  that  makes  such  loans  the  best  in  the 
world." 

Influence  of  Future  Price  on  Cash  Price. — Does  the 
future  price  control  the  cash  price?  Some  experts  on  the 

*  National  Huij  and  Grain  Reporter,  May  20,  1911,  p.  29. 


GO       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE- 

grain  trade  claim  that  it  does.  And  since  the  future  price  is 
made  in  the  pit,  largely  under  speculative  trading, — the  con- 
clusion is  also  reached  that  the  cash  price  is  a  mere  football 
of  speculation.  Jt  has  already  been  stated  in  Chapter  I  thai 
cash  price  reflects  supply  and  demand  conditions.  It  may 
now  be  stated  at  this  point,  that  future  price  does  not  deter- 
mine cash  price. 

The  course  of  corn  prices  on  the  Chicago  Board  of  Trade 
for  1917-1918  illustrates  the  fact  that  futures  do  not  domi- 
nate cash  prices.  The  1916  corn  crop  was  small.  In  1917  the 
crop  was  large — the  largest  on  record,  according  to  the  fig- 
ures published  by  the  Department  of  Agriculture.  But  this 
corn  was  wet  and  very  largely  unmerchantable.  Coupled 
with  this  fact  came  war  conditions,  government  food  con- 
trol, car  shortages,  coal  shortages,  and  general  market 
demoralization.  However,  the  consumptive  buyers  of  corn 
(the  corn  products  companies,  the  mills,  the  feed  manufac- 
turers, livestock  interests,  etc.)  needed  the  corn  and  bought 
freely.  In  January,  1917,  cash  corn  ranged  from  $.93  1/4  to 
$1.03,  and  the  May  corn  at  the  same  time  was  $.93  1/2  to 
$1.03  1/4,  or  practically  the  same  as  the  spot.  From  this 
date  on  the  premium  on  cash  corn  gradually  increased,  as 
both  the  spot  and  the  future  rose  in  price.  In  July  cash  corn 
had  climbed  to  $2.32 — a  figure  so  high  as  to  alarm  govern- 
ment officials.  At  this  period  we  were  shipping  every 
possible  ounce  of  wheat  to  our  allies  in  the  World  War,  and 
hence  we  were  consuming  all  sorts  of  wheat  bread  substi- 
tutes, one  of  which  was  corn.  Officials  of  the  federal  govern- 
ment gave  a  warning  to  the  Board  of  Trade  that  corn  prices 
were  getting  too  high,  and  that  speculation  on  corn  must  be 
curtailed  or  stopped  altogether.  The  assumption  apparently 
was  that  speculation  was  in  part  the  cause  of  the  rise  in  price, 


THE  CHICAGO  BOARD  OF  TRADE  61 

— an  assumption  which  later  events  proved  to  be  contrary 
to  the  facts.  The  Directors  accordingly  on  July  11  fixed  a 
maximum  or  upset  price  on  corn  futures  for  1918  of  $1.28  and 
forbade  the  making  of  any  future  contracts  for  delivery 
during  1918  in  excess  of  this  upset  price.  And  on  the  next 
day — July  12 — the  Directors  made  the  same  rule  apply  to  all 
future  corn  contracts  for  December,  1917,  delivery.  This  of 
course  held  the  future  price  below  $1.28.  Now,  according  to 
the  theory  of  some  thinkers,  this  regulation  would  have  held 
the  cash  price  down  also.  But  the  contrary  thing  happened. 
The  trend  of  cash  price  was  upward,  till  the  new  corn  crop 
began  to  arrive  on  the  market.  At  no  time  after  July  did 
cash  corn  fall  below  $1.60,  and  most  of  the  time  it  was  above 
$2.00.* 

The  natural  position  of  futures,  in  months  under  old-crop 
influences,  is  of  course  above  cash  by  the  amount  of  the^ 
carrying  charge^  The  "carrying  charge"  includes  the  stor- 
age charge  in  the  terminal  elevator  (fixed  by  the  Rules  of  the 
Board  of  Trade),  the  insurance  on  the  grain,  and  the  interest 
on  the  money  invested.  But  when  cash  grain  is  selling  under 
old-crop  influences  (as  wheat  in  April  or  corn  in  July)  and  the 
future  delivery  is  under  new-crop  conditions  (wheat  for  July 
delivery,  corn  for  December  delivery),  there  is  of  course  no 
influence  of  futures  over  cash  or  cash  over  futures. 

Oats  futures  ranged  below  cash  oats  during  the  year  1918, 
instead  of  above.  Corn  futures  ranged  below  cash  corn  dur- 
ing the  same  year.  The  pressure  of  consumptive  demand 
was  strong  enough  to  keep  the  cash  grain  at  a  premium  over 
futures. 

The  conclusion  seems  warranted  that  neither  future  nor 
cash  price  has  a  dominating  influence,  permanently,  over  the 
*  See  Appendix  5  for  statistics. 


62   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE    • 

other,  but  that  both  are  merely  effects  of  supply  and  deinand 
causes^  _  'I'hev  are,  in  short,  effects  of  the  same  underlying 
causes. 

Delivery  Months. — At  first  future  trading  was  done  for 
delivery  in  every  one  of  the  twelve  months  of  the  year. 
Gradually  however,  trading  concentrated  on  certain  months 
with  reference  to  the  harvest  period,  the  crop  moving  period, 
and  the  opening  of  Lake  Navigation.  For  wheat,  this 
meant  July,  September,  December  and  May.  Corn  usually 
has  one  or  two  more  delivery  months.  It  is  custom  which 
has  fixed  the  delivery  months. 

(6)  Corners. — " Cornering  the  grain  market"  is,  in  the 
minds  of  many  people,  a  popular  pastime  on  the  Board  of 
Trade.  And  this  belief  is  founded  on  facts  in  connection 
with  the  history  of  the  Board,  from  its  earliest  days,  down  to 
ten  or  fifteen  years  ago.  What  the  past  history  has  been  and 
what  the  present  condition  is  can  best  be  shown  by  a  simple 
narration  of  the  facts. 

It  was  the  Civil  War,  as  stated  before,  that  gave  a  great 
impetus  to  future  trading,  but  it  was  the  period  immediately 
following  the  war  that  saw  a  great  spurt  in  the  business  of 
cornering  the  market.  Chicago's  historian  Andreas  speaks 
of  the  year  1868  in  these  terms: 

"The  year  of  corners.  There  was  a  corner  a  month,  three 
on  wheat,  two  on  corn,  one  on  oats,  one  attempted  on  rye, 
and  the  year  threatened  to  go  out  with  a  tremendous  one  on 
pork  products.  The  corner  on  Number  2  spring  wheat 
which  succeeded  in  June,  started  at  $1.77  and  culminated 
June  30,  at  $2.20.  The  price  in  New  York  at  the  time  was 
$2.02,  and  the  day  after  the  corner  the  Chicago  price  fell 
to  $1.80,  and  the  second  of  July  to  $1.75.  This  corner 
rivaled  much  discussion  as  to  restrictive  rules,  and  the 


THE  CHICAG-O  BOARD  OF  TRADE  63 

apt  Ml  ion  was  brought,  to  a.  head  by  a  corner  on  September 
com." 

This  September  corn  corner  squeezed  many  prominent 
members  of  the  Board,  including  the  President.  The  Board 
passed  the  following  Resolution  against  corners  October  13, 
1868: 

Resolved,  That  the  practice  of  "corners"  of  making  contracts  for 
the  purchase  of  a  commodity,  and  then  taking  measures  to  render  it 
impossible  for  the  seller  to  fill  his  contract,  for  the  purpose  of  ex- 
torting money  from  him,  has  been  too  long  tolerated  by  this  and 
other  commercial  bodies  in  the  country  to  the  injury  and  discredit  of 
legitimate  commerce;  that  these  transactions  are  essentially  im- 
proper and  fraudulent,  and  should  any  member  of  this  Board  here- 
after engage  in  any  such  transactions,  the  Directors  should  take 
measures  for  his  expulsion,  under  the  provisions  of  Rule  V  for  the 
prevention  of  improper  and  fraudulent  practices. 

But  alas  for  this  good  resolution!  It  went  the  way  of 
many  other  good  intentions.  That  was  the  era  of  the  settle- 
ment of  the  public  lands,  with  their  concomitant  land  frauds 
and  land  speculations,  of  unabashed  railway  rebating,  and  of 
general  laxity  in  business  morals  not  tolerated  to-day.  And 
so  the  Board  of  Trade  was  at  this  time  far  from  being  able  or 
willing  to  deal  firmly  with  the  evil  of  corners. 

For  instance,  in  1871  (July)  there  were  corners  in  wheat 
and  oats.  In  August  there  was  a  squeeze  in  wheat,  but 
wheat  was  rushed  in  by  boat,  and  the  market  broke  20  cents 
a  bushel,  ending  the  squeeze.  The  year  1872  was  a  year  of 
manipulations  and  attempted  corners.  One  firm  attempted 
to  corner  oats  in  June,  but  were  themselves  bankrupted  and 
suspended.  In  August  a  wheat  corner  was  promoted  by  two 
Toronto  and  two  local  traders;  wheat  was  shipped  in,  break- 


64        SPECULATION    AND    THE    CHICAOO    BOARD    OF    TRADE 

ing  the  price  47  cents  in  a  little  more  than  twenty-four  hours. 
One  of  the  Toronto  traders  was  suspended  from  the  Board. 

At  this  juncture  the  Board  attempts  a  constructive  re- 
form, by  adopting  an  anti-corner  rule,  permitting  the  settling 
of  contracts  on  an  "intrinsic  value"  basis  rather  than  a 
''fictitious  price."  basis. 

The  Chicago  fire  of  1871  seemed  to  encourage,  rather  than 
discourage  speculation  in  its  various  forms. 

One  of  the  ablest  secretaries  the  Board  of  Trade  has  ever 
known,  Mr.  Randolph,  spoke  of  the  pathological  condition  of 
affairs  in  his  Annual  Report  for  1872,  in  these  words: 

"The  year  has  probably,  as  a  whole  witnessed  more 
irregularity  and  excitement  in  the  grain  trade  than  any  of  its 
predecessors.  The  trading  (largely  on  speculation)  has  been 
enormous,  and  the  tendency  for  speculation  has  indeed  been 
rampant.  Various  theories  are  advanced  as  accounting  for 
this  growing  mania,  the  more  plausible  one,  perhaps,  being 
that  owing  to  large  losses  by  our  fire  and  other  sweeping 
misfortunes  here  and  elsewhere,  men  have  been  anxious  to 
hazard  on  operations  apparently  promising  speedy  and 
fortunate  results;  but  this  cannot  account  for  all  this  in- 
crease in  this  class  of  business.  It  is  well  known  by  those 
familiar  with  the  business  that  much  the  larger  portion  of  it 
is  transacted  by  order  of  and  on  account  of  parties  not  resi- 
dents of  this  city." 

In  1874  two  full-fledged  corners  are  reported,  despite  the 
good  resolutions  of  the  Board.  There  was  an  oats  corner 
by  G.  W.  Adams  and  a  corn  corner  by  W.  N.  Sturges.  But 
in  a  September  corn  corner  Mr.  Sturges  himself  was  caught, 
and  was  expelled  by  the  Board  for  violation  of  its  rules. 

In  1878  there  was  a  squeeze  in  May  wheat;  a  corner  in 
July  wheat ;  and  a  squeeze  in  December  wheat.  The  last  was 


THE  CHICAGO  BOARD  OP  TRADE  65 

engineered  by  a  Mr.  Keene  of  New  York,  and  was  carried 
over  into  1879. 

By  the  year  1881  the  men  with  millions,  the  "  giants," 
began  to  operate  in  the  pit.  Hence  we  have  a  decade  famous 
in  Board  of  Trade  annal  for  the  number  and  size  of  the 
attempts  to  corner  the  market.  In  January  a  big  wheat  deal 
was  started.  In  February  a  big  packer  began  operations  in 
pork.  In  March  there  was  a  flurry  in  the  wheat  pit.  In 
April  there  developed  a  shortage  in  rye.  In  July  the  biggest 
dealings  thus  far  in  corn,  wheat  and  oats  were  seen,  the 
month  closing  with  a  big  oats  corner.  August  saw  a  wheat 
corner  engineered  by  Cincinnati  parties.  In  October  came 
a  squeeze  in  corn.  The  year  ended  with  a  corner  in  barley. 
The  Directors  finally  took  steps  to  regulate  and  curb  to 
some  extent  the  evil.  They  fixed  anrttpsetprice  on  corn  at 
62  cents — much  to  the  disgust  of  the  bulls.  ^The  Board  also 
considered'  the  advisability  of  havinVtratKority  given  them 
by  the  membership  to  declare  grain  stored  in  boats  and  out- 
side warehouses  regular  for  delivery  on  future  contracts, 
thus  making  a  corner  more  difficult. 

The  year  1882  saw  four  corners  and  defaulted  contracts  in 
wheat  in  April,  June,  July  and  August:  also  a  corn  corner 
in  August,  a  lard  corner  in  September,  and  a  ribs  corner  in 
October.  A  great  many  lawsuits  followed  these  corners. 
Sentiment  on  the  moral  question  involved  in  corners  was  not 
crystallized.  Thus,  the  anti-corner  rule  of  1871  was  resub- 
mitted,  and  was  repealed  by  a  vote  of  490  to  410. 

"During  the  year  1883  there  were  few  corners,  and  not  one 
of  them  a  success.  The  corner  of  the  wheat  market  in  1887 
is  known  as  the  Harper  deal  and  the  Kershaw  failure.  A 
squeeze  was  run  in  May  wheat.  But  the  amount  of  wheat  in 
store  increased  rapidly,  to  meet  the  squeeze.  The  Directors 


(if)       SPECULATION"    AND    TlfK    CHICAdO    HOARD    OF    THADK 

declared  additional  storage  regular,  thus  adding  300,000 
bushels  to  the  storage  capacity  of  the  city.  The  clique 
runn'ng  the  corner  now  sold  May  wheat  and  bought  June 
and  July  wheat.  The  clique  became  a  heavy  buyer  and 
prices  rose.  The  high  prices  attracted  wheat  to  Chicago. 
The  price  of  June  wheat  was  maintained  at  88  cents  for  sev- 
eral days.  The  price  of  some  June  deliveries  rose  to  91  14 
cents.  More  wheat  poured  in.  The  directors  made  addi- 
tional buildings  regular  with  a  capacity  of  1,000,000  bushels. 
The  directors  discussed  the  question  of  making  wheat  on 
track  regular.  The  clique  running  the  corner  showed  signs 
of  inability  to  receive  and  pay  for  so  much  wheat.  On  June 
11,  July  wheat  fell  from  86  1/8  to  82  1/2  cents.  Cash  wheat 
was  now  selling  at  92  cents,  and  a  new  crop  in  sight  of  more 
than  average  size. 

The  crisis  came  on  June  14  when  wheat  dropped  nearly  19 
cents,  following  the  failure  of  a  Cincinnati  bank.  The 
clique  made  money  on  their  short  sales:  losses  on  the  long 
wheat  were  never  paid.  The  Kershaw  house  was  unable  to 
settle  with  any  of  its  creditors  during  the  year  and  so  with 
many  other  houses.  A  Cincinnati  banker,  who  wa^  helping 
finance  the  corner  with  money  obtained  illegally  from  his 
bank,  wrecked  his  bank  and  was  given  a  sentence  of  ten 
years  in  the  penitentiary.  However,  later  evidence  tends  to 
prove  he  was  merely  the  scapegoat,  not  the  real  criminal. 

One  outstanding  feature  of  this  corner  was  the  fact  that 
one  Chicago  Elevator  Company  completed  the  erection  of  a 
400,000  bushel  elevator  in  14  days,  and  another  grain  deakr*' 
built  and  equipped  an  elevator  in  30  days. 

This  Kershaw  corner  of  1887  was  the  most  disgraceful  deal 
in  connection  with  the  whole  distory  of  the  Board  of  Trade. 
It  was  frankly  a  premeditated  raid  by  a  few  outsiders,  aided 


THK    CIlICAfJO    BOARD    OF    TRADE  67 

and  abetted  by  a  traitor  to  his  associates  of  the  Board  of 
Trade.  It  should  have  been  treated  by  the  Board  for  what 
it  really  was — an  act  of  piracy. 

The  year  of  1902  is  known  as  "Oats  corner"  year  on  the 
Board  of  Trade.  This  frank  and  deliberate  cornering  of  the 
market  brought  much  financial  disaster  and  led  to  forty-one 
lawsuits.  The  court  held  that  contracts,  in  case  of  a  corner, 
must  be  settled  at  a  price  representing  the  actual  value  of  the 
commodity,  and  not  the  fictitious  "  corner  "  value. 

The  John  W.  Gates  corner  of  1905  may  be  mentioned, 
since  it  is  typical  of  the  cornering  operations  of  the  period. 
In  February,  1905,  May  wheat  began  to  show  signs  of  a 
corner,  the  understanding  of  the  Board  of  Trade  being  that 
certain  Wall  Street  interests  headed  by  Mr.  John  W.  Gates 
were  long.  At  the  close  of  March  May  wheat  stood  at  25 
cents  over  July.  There  was  talk  of  litigation,  should  a  cor- 
ner develop  and  force  artificial  price  levels.  On  April  22  the 
Gates  interests  began  to  unload  their  wheat,  in  order  to  re- 
alize their  paper  profits,  selling  10,000,000  bushels.  This 
broke  the  price  to  $1.05,  whereas  the  wheat  had  cost  $1.15. 
Later  the  rest  of  the  line  was  sold,  8,000,000  bushels  in  all, 
adding  another  $800,000  to  the  losses  of  the  Wall  Street- 
interests.  The  price  declined  to  86  3/4  cents  on  April  27. 
The  corner,  like  most  corners,  had  failed,  and  its  promoters 
had  lost  money. 

The  "  Three  Big  Corners."— In  the  minds  of  the  public 
there  stand  out  sharp  and  distinct  three  so-called  corners  on 
the  Board  of  Trade,  namely,  the  Hutchinson  corner,  the 
Leiter  corner,  and  the  Patten  corner.  One  of  these  was  not 
a  comer;  one  was  a  failure  and  wrecked  the  man  who  ran  it; 
one  may  be  properly  called  a  temporarily  successful  corner. 
The  importance  of  these  three  " corners"  warrants  their  dis- 


68   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE   • 

cussion  in  detail.  These  corners  mark  approximately  twenty 
years  of  Board  of  Trade  history,  and  are  associated  with  the 
three  dates,  1888,  1898  and  1908. 

The  Hutchinson  Corner:  1888. — Mr.  B.  P.  Hutchinson 
was  a  factor  in  the  market  during  the  entire  year  of  1888. 
In  the  second  week  of  May  the  Government  Crop  Report 
appeared,  forecasting  an  immense  shortage  in  the  wheat 
crop.  Wheat  advanced  4  cents,  and  Hutchinson  was  sup- 
posed to  be  on  the  losing  side  (short  side)  of  the  market. 
The  general  course  of  the  market,  however,  was  downward 
until  July,  and  by  July  8,  Hutchinson  was  said  to  be  a  heavy 
winner.  During  August  he  took  the  bull  side  of  the  market, 
buying  September  wheat,  and  becoming  long,  it  was  esti- 
mated, 5,000,000  bushels  of  wheat.  Then  came  serious  frost 
damage;  and  a  sharp  advance  in  wheat.  By  August  25 
European  markets  were  higher  on  account  of  European  crop 
shortages.  When  September  delivery  arrived,  Hutchinson 
received  and  paid  for  large  quantities  of  wheat.  He  then 
began  to  buy  December  wheat.  By  September  22  wheat  for 
September  delivery  reached  $1.00  for  the  first  time  in  five 
years.  Hutchinson  sold  1,000,000  bushels  at  a  profit,  with- 
out checking  the  price  advance.  The  Northwest  had  suf- 
fered a,  crop  disaster  of  the  first  magnitude.  The  September 
shorts  found  wheat  at  $1.28  on  September  27;  at  $1.50  on 
September  28;  at  $2.00  on  September  29. 

Wheat  for  December  delivery  opened  at  104  1/4  on 
October  1.  Hutchinson  bought  December  wheat,  bidding 
the  price  up  to  $1.08. 

In  October  a  correction  in  the  Government  Crop  Estimate 
reduced  the  figures  on  the  wheat  crop  by  100,000,000  bush- 
els, and  this  helped  the  bull  movement. 

The  market  showed  some  reaction  about  this  time,  falling 


THE  CHICAGO  BOARD  OF  TRADE  69 

ten  cents.  It  is  now  supposed  that  Hutchinson  took  first  one 
side  and  now  the  other  of  the  market. 

Unquestionably  Hutchinson  had  supply  and  demand 
factors  with  him  during  most  of  the  year,  and  realized  great 
profits. 

During  the  year  1890  Hutchinson  was  very  active,  but 
was  unable  again  to  dominate  the  market.  He  took  the  bull 
side,  but  supply  and  demand  factors  were  against  him. 
After  this  date  he  ceased  to  be  an  important  market  factor. 
His  successful  corner  was  a  combination  of  bold  and  daring- 
use  of  millions  of  dollars,  on  the  side  of  the  market  which  had 
the  fundamental  factors  of  supply  and  demand  with  it  and 
not  against  it. 

The  Leiter  Corner:  1898. — Mr.  Joseph  Leiter  entered 
the  market  in  1897  on  the  bull  side,  believing  conditions 
justified  higher  prices.  January  1,  wheat  opened  at  81 
cents,  and  stood  at  74  cents  at  the  close  of  the  month.  Cash 
wheat  worked  down  to  70  cents  and  under,  in  June.  There 
was  then  a  rumor  of  a  corner  in  July  wheat.  Towards  the 
close  of  June  wheat  advanced  to  73  1/2  cents.  The  first 
week  in  July  came  hot  winds  in  Kansas,  affecting  corn  but 
not  wheat.  On  July  10  wheat  stood  at  69;  on  July  26,  at  79. 
July  deliveries  amounted  to  1,000,000  bushels,  and  with  a 
profit  to  the  buyer.  The  August  wheat  market  opened  at  76 
cents,  and  by  August  11  it  stood  at  83  cents.  The  next  day 
September  wheat  advanced  3  cents.  Cash  wheat  reached 
$1.00  during  this  bull  campaign.  High  prices  attracted 
large  receipts,  the  western  roads  bringing  in  over  5,000  cars 
of  grain  on  the  thirtieth  and  thirty-first  of  August. 

Cash  wheat  failed  to  hold  at  these  high  prices  during 
September.  William  Jennings  Bryan  issued  a  statement 
that  the  higher  prices  for  wheat  were  due  entirely  to  crop 


70       SPECULATION   AND   THE    CHI  (AGO    BOARD    OF 

shortages  in  India  and  Europe,  and  had  nothing  to  do  with 
political  events  or  free  silver. 

Speculation  was  shifted  to  December  wheat. 

Just  prior  to  the  first  of  December  came  the  great  export 
movement  of  wheat,  a  part  of  the  Leiter  plan  to  keep  up 
prices  on  December  wheat  of  which  he  was  the  owner. 

By  December  9  a  scarcity  of  cash  wheat  put  the  price  up  to 
$1.09.  This  high  price  attracted  an  avalanche  of  wheat  to 
Chicago.  Big  receipts  forced  the  market  down  to  97  1/2. 
Supplies  from  Minneapolis  and  Duluth,  and  from  Ohio, 
Indiana  and  Michigan  made  it  easy  for  the  shorts  to  deliver. 
It  is  said  that  Armour  alone  chartered  a  score  of  large  lake 
vessels,  hired  icebreakers  and  tugs,  and  got  safely  out  of  the 
Duluth  harbor  and  through  the  Soo  canals,  bringing  down 
2,000,000  bushels  of  wheat  in  time  for  December  delivery. 
At  any  rate,  contract  grade  of  wheat  in  store  in  Chicago  in- 
creased from  5,180,000  bushels,  December  18,  to  9,026,000 
bushels  December  31.  Nearly  all  of  this  was  delivered  to 
Leiter.  In  an  interview  at  this  time,  Mr.  Leiter  is  quoted  as 
saying: 

I  am  confident  that  the  price  of  wheat  will  go  up,  and  that  we  will 
sell  our  wheat  at  much  higher  prices  than  now  quoted  for  cash 
wheat.  There  is  no  special  reason  why  we  should  feel  despondent 
when  we  know  that  our  wheat  is  of  exceptionally  high  grade.  It  lias 
been  bought  cheap,  and  the  general  conditions  of  supply  and  de- 
mand are  in  our  favor. 

The  wheat  probably  cost  him  from  80  to  85  cents  a  bushel. 
The  cost  of  carrying  this  wheat  for  insurance  and  storage  was 
$4,450  per  day,  and  with  the  new  year  1898  came  the  prob- 
lem of  selling  this  wheat.  But  1898  brought  a  declining- 
market. 


THE  CHICAGO  BOARD  OF  TRADE  71 

Early  in  the  year  we  were  plunged  into  war. 

Wheat  kept  arriving  in  Chicago  in  large  quantities — 
10,000,000  bushels  from  February  1  to  June !  Prices  held  up 
fairly  well  for  a  few  months.  The  Government  Crop  Re- 
port on  June  10,  however,  forecast  a  record  crop.  At  this 
date  the  price  was  $1.00  to  $1.03.  Next  day  the  price  was 
89.  On  Monday  June  13  the  price  was  85.  The  occurred 
the  collapse  of  the  Leiter  deal.  Leiter's  loss  has  been  esti- 
mated at  between  two  and  three  million  dollars.  At  any 
rate  he  failed  to  settle  in  full  and  was  indefinitely  suspended 
from  the  Board. 

The  Patten  Corner:  1909.— The  Patten  corner  in  May 
wheat,  socalled,  began  in  a  preliminary  way  in  the  spring  of 
1907.  The  year  began  with  good  crop  prospects.  Crop 
damage  reports,  however,  soon  began  to  affect  the  May 
wheat  market.  The  green  bug  was  destroying  a  large  por- 
tion of  the  wheat  in  Oklahoma,  Kansas,  and  southern 
Missouri,  Illinois  and  Indiana.  The  estimated  damage  was 
given  as  106,000,000  bushels. 

On  May  10  came  the  Government  Crop  report,  showing  a 
large  abandoned  acreage  of  wheat.  May  wheat  now  reached 
86  3/8  cents,  although  it  had  been  as  low  as  75  1/4  cents 
in  January. 

It  was  during  May  that  Mr.  Patten  was  commonly  men- 
tioned as  being  a  bull  in  wheat. 

September  wheat  and  then  July  wheat  went  above  the 
dollar  mark.  December  wheat  soon  rose  to  $1.05. 

During  the  last  half  of  May  the  market  fluctuated  up  and 
down  with  a  few  sharp  backsets.  There  was  an  upturn  at 
the  end  of  the  month. 

Trading  during  June  was  active,  but  not  of  so  much  vol- 
ume as  May  had  been.  The  green  bug  damage  continued: 


72       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE- 

hot  winds  added  to  the  damage.  Mr.  Patten,  it  is  supposed, 
was  on  the  bear  side  of  the  market  during  June,  notwith- 
standing the  unfavorable  crop  outlook.  With  continued 
bad  crop  outlook  in  July,  Mr.  Patten  again  it  is  said,  took  the 
bull  side  of  the  market. 

During  August  cash  wheat  prices  advanced  due  to  un- 
seasonably cold  weather. 

During  September  the  price  held  firm  for  some  weeks,  but 
the  approaching  financial  panic  was  already  making  money 
increasingly  difficult  to  obtain.  September  closed  with 
wheat  below  one  dollar. 

The  heavy  buying  of  Patten  upheld  the  market  during 
October. 

During  the  latter  half  of  October  the  severe  financial 
panic  of  1907  was  in  full  force. 

During  the  year  1908  Mr.  Patten  laid  the  foundation  for 
his  so-called  corner  of  May,  1909,  wheat. 

In  May,  1908,  the  wheat  market  opened  with  prices  rising. 
General  bad  crop  conditions,  Hessian  fly,  reports  that  the 
world's  wheat  stocks  were  low,  all  served  to  advance  prices. 
The  Government  crop  report  for  May  forecast  a  crop  some 
200,000,000  bushels  below  the  average. 

During  September,  1908,  Mr.  Patten  was  credited  with 
being  the  heaviest  buyer  of  wheat. 

This  buying  also  continued  during  November. 

The  1909  market  campaign  was  one  of  the  most  remark- 
able in  history,  for  its  size. 

Heavy  exports  in  the  fall  of  1908,  several  poor  crop  years, 
increase  in  domestic  consumption  had  left  the  United  States 
short  of  wheat. 

May  13,  1909,  cash  wheat  sold  at  $1.28. 

Mr.  Patten  was  blamed  for  the  rising  cost  of  wheat,  of 


THE  CHICAGO  BOARD  OF  TRADE  73 

flour,  of  bread.  But  he  replied  that  he  had  kept  wheat  in 
America  by  buying  it  and  putting  it  in  store,  and  that  the 
high  prices  were  due  to  the  law  of  supply  and  demand.  He 
denied  he  was  working  a  corner. 

The  top  price  for  May  was  $1.35  1/2,  the  month  closing 
at  $1.34. 

Cash  wheat  during  May  opened  at  142  1/2  to  145  3/4, 
ranging  as  high  as  154  on  May  25,  and  closing  at  150  to  152 
at  the  end  of  May.  June  1  cash  wheat  opened  at  150  to  153, 
and  ranged  gradually  higher  to  the  middle  of  the  month, 
reaching  155  to  160. 

Prices  held  high  till  the  new  crop  came  in,  when  prices 
fell  to  123  to  124  cents  for  cash  wheat  the  middle  of  July. 

Hence  according  to  these  market  figures  the  high  price  of 
May  was  not  due  to  a  Patten  corner,  but  to  supply  and  de- 
mand. For  June  wheat,  without  a  corner,  rose  above  May 
wheat. 

The  conclusion  seems  warranted,  therefore,  that  so  far  as 
these  three  famous  corners  are  concerned,  the  Patten  corner 
was  not  a  corner:  the  Leiter  corner  was  a  failure:  and  the 
Hutchinson  corner  was  a  successful  corner. 

Shortly  after  the  May,  1909,  wheat  "  corner  "'the  Supreme 
Court  of  the  United  States  (in  a  cotton  corner  case)  handed 
down  a  decision  making  unlawful  and  criminal  the  cornering 
of  interstate  commodities. 

In  brief,  then,  this  is  the  story  of  corners  on  the  Board 
of  Trade.  In  the  early  years,  and  indeed  down  to  within 
recent  years,  the  legitimate  function  of  future  trading  was 
largely  prostituted  to  the  running  of  corners.  Who  suffered 
and  who  was  the  beneficiary?  Since  corners  always  tempo- 
rarily raised  prices  the  farmers  did  not  suffer.  In  a  few  cases 
bread  prices  were  temporarily  raised  so  that  the  consumer 


74   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TKADE 

"suffered"  (although  the  average  American's  consumption 
of  wheat  for  seed,  bread  and  all  purposes  is  only  41/2  bushels 
per  year,  which,  with  wheat  at  $1.00  per  bushel,  means  11/3 
cents  per  day — hence  a  consumer  would  not  "suffer"  very 
serious  impairment  of  his  pocketbook  if  wheat  were  tempo- 
rarily raised  to  $2.00  per  bushel.)  Since  most  corners  failed, 
the  greatest  loss  fell  on  the  promoters  of  the  corner.  In  the 
long  run,  however,  the  Board  of  Trade  itself  suffered  most 
by  permitting  this  lax  and  immoral  practice  to  run  so  long. 
Since  the  public  knows  the  Board  of  Trade  only  through  the 
press,  and  since  the  press  conveys  to  the  public,  as  a  rule, 
only  the  spectacular  events,  it  follows  that  the  reputation  of 
the  Board  of  Trade  is  based  on  the  spectacular  and  the  evil, 
rather  than  the  commonplace  and  the  useful.  And  again, 
in  a  more  tangible  way,  each  cornering  of  the  market  has 
resulted  in  financial  loss  to  many  members  of  the  Board,  and 
to  financial  ruin  to  a  few.  Manifestly  then,  the  Board  has 
suffered  much  more  than  it  has  gained  from  corners. 

In  short,  experience  proves  that  corners  do  not  pay. 

It  is,  therefore,  both  to  the  public  interest  and  to  the 
Board's  interest  to  abolish  corners  on  the  P]xchange  entirely. 
It  is  within  the  power  of  the  Board  of  Directors  to  do  this. 
The  absence  of  corners  in  late  years  is  evidence  that  some 
progress  has  been  made  in  this  direction.  But  has  the  Board 
gone  far  enough? 

Steps  Taken  to  Prevent  Corners. — What  action  the  Board 
has  already  taken  to  prevent  corners  may  be  summarized 
under  the  following  five  steps: 

a.  Shipping  Grain  Out  of  Store. — The  Board  of  Direc- 
tors in  May,  1910,  adopted  a  resolution  branding  as  uncom- 
mercial and  dishonorable  conduct  the  practice  of  selling  out 
the  Chicago  grain  on  other  markets,  at  less  than  Chicago 


THE  CHICAGO  BOARD  OF  TRADE  75 

prices,  to  produce  a  shortage  in  Chicago  in  order  to  help  the 
bulls  squeeze  the  bears.  Some  big  wheat  bulls  had  indulged 
in  this  practice. 

b.  Delivery  at  a  "  Fair  Price,"  and  not  at  a  "  Fictitious 
Price." — In  June,  1910,  the  Board  membership  adopted  a 
drastic  anti-corner  rule  by  a  vote  of  348  to  191.    It  provided 
that  the  short,  in  case  of  a  market  squueze,  could  settle  at  a 
fair  market  price  plus  liquidated  damages  of  not  over  10  per 
cent.     The  rule  provided  that  the  settling  price  should  be 
fixed  by  a  committee  of  three,  appointed  by  the  President, 
which  committee  should  take  into  consideration  the  cash 
price  in  Chicago  on  the  last  of  the  month,  the  prices  in  other 
markets  for  cash  grain,  and  also  for  futures:  whereas  up  to 
this  time  the  rules  had  provided  that  the  average  price  of  a 
future  should  be  the  settling  price  for  the  day. 

c.  Grades    Deliverable    on    Contract. — The    fewer    the 
grades  deliverable  on  contract,  the  easier  it  is  to  corner  the 
market.    In  the  early  days,  when  corners  were  very  common, 
only  one  grade  of  wheat  was  deliverable  on  contract,  namely, 
No.  2  spring.    At  the  present  time,  however,  the  following 
21  grades  of  wheat  are  deliverable: 

(1)  Deliverable  on  contract,  at  contract  price: 
No.  1  dark  hard  winter  wheat 
No.  1  hard  winter  wheat 
No.  1  yellow  hard  winter  wheat 
No.  2  dark  hard  winter  wheat 
No.  2  yellow  hard  winter  wheat 
No.  1  red  winter  wheat 
No.  2  red  winter  wheat 
No.  1  dark  northern  spring  wheat 
No.  1  northern  spring  wheat 
No.  2  dark  northern  spring  wheat 


76       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

No.  2  northern  spring  wheat 
No.  1  red  spring  wheat 
No.  2  red  spring  wheat 

(2)  Deliverable  on  contract  at  5  cents  a  bushel  under 
contract  price: 

No.  3  dark  hard  winter  wheat 
No.  3  hard  winter  wheat 
No.  3  yellow  hardwinter  wheat 
No.  3  red  winter  wheat 
No.  1  hard  white  wheat 
No.  2  hard  white  wheat 

(3)  Deliverable  on  contracts  at  8  cents  a  bushel  under 
contract  price: 

No.  3  dark  northern  spring  wheat 

No.  3  red  spring  wheat 

Formerly  one  grade  of  corn  was  deliverable  on  con- 
tracts— and  corners  were  easy  and  frequent.  Now  the 
lowing  12  grades  are  deliverable: 

(1)  At  1/2  cent  per  bushel  over  contract  price: 
No.  1  white  corn 

No.  2  white  corn 
No.  1  yellow  corn 
No.  2  yellow  corn 

(2)  At  contract  price: 
No.  1  (mixed)  corn 
No.  2  (mixed)  corn 

(3)  At  2  cents  per  bushel  under  contract  price: 
No.  3  white  corn 

No.  3  yellow  corn 

(4)  At  2  1/2  cents  per  bushel  under  contract  price: 
No.  3  (mixed)  corn 

(5)  At  4  1/2  cents  per  bushel  under  contract  price: 


THE  CHICAGO  BOARD  OF  TRADE  77 

No.  4  white  corn 
No.  4  yellow  corn 
(6)  At  5  cents  per  bushel  under  contract  price: 

No.  4  (mixed)  corn 

In  the  case  of  oats,  three  grades  are  now  deliverable — 
all  white  oats — No.  2  at  contract  price;  No.  1  at  1/2  cent  pre- 
mium; No.  3  at  1  1/2  cent  discount. 

d.  Delivery  on  Track. — Normally,  deliveries  are  made 
only  of  grain  in  " regular"  public  warehouses,  the  evidence  of 
ownership  being  the  warehouse  receipt  properly  registered 
and  indorsed.    In  case  the  operator  of  a  corner  owned  all  the 
grain  in  store  at  the  regular  terminal  warehouses,  manifestly 
the  shorts  would  have  to  buy  of  the  cornerer  at  his  own  price 
— or  default  on  contracts.    To  meet  this  emergency  a  Rule 
was  adopted  providing  for  delivery  of  grain :  on  track  within 
the  Chicago  switching  district  during  the  last  three  business 
days  of  the  delivery  month.    Kansas  City  has  a  similar  rule 
for  the  last  six  days  of  the  month,  and  made  use  of  this  rule 
a  few  years  ago  to  deliver  to  the  manipulator  a  few  hundred 
cars  of  grain  on  track — much  to  his  discomfiture. 

e.  Declaring  Additional  Warehouses  Regular. — A  regu- 
lar warehouse  is  one  whose  receipts  are  deliverable  on  future 
contracts.    A  Rule  has  been  adopted,  giving  the  Directors 
authority,  in  case  of  emergency,  to  declare  any  storehouse  in 
the  Chicago  switching  district  with  proper  trackage  facili- 
ties, or  any  vessel  in  the  harbor,  to  be  regular  places  for  the 
storage  of  grain  deliverable  under  Board  of  Trade  rules. 

These  are  all  very  important  safeguards  and  they  have 
apparently  worked  successfully  for  several  years.  In  the 
opinion  of  the  writer,  however,  the  problem  of  corners  is  a 
serious  and  a  fundamental  one,  and  not  to  be  paltered  with, 
or  subject  to  mere  good-intentioned  regulations.  A  drastic 


78       SPECULATION    AND    THE    CHICAGO    BOARD    OF    TRADE 

remedy  is  needed.  And  that  remedy,  ready  to  hand  and  easy 
to  apply,  is  expulsion  from  the  Board.  .  Any  corner  or  at- 
tempt to  corner  should  meet  this  treatment.  A  rule  of  this 
kind,  once  adopted  and  applied  (if  need  arose)  would  go  far 
to  improve  the  Board  and  reassure  the  public.  And,  in  all 
human  probability,  it  would  definitively  end  all  corners. 

(7)  Clearing  House  of  the  Chicago  Board  of  Trade.— 
There  are  two  kinds  of  clearing  houses  in  use  in  the  grain 
trade,  the  kind  used  by  the  Chicago  Board  of  Trade,  and  the 
kind  used  by  all  the  other  Exchanges  doing  future  trading. 
The  functions  of  a  clearing  house  in  the  grain  trade  are  some- 
what similar  to  those  of  bank  clearing  houses — namely,  to 
economize  time  and  money  in  settling  accounts.  The  clear- 
ing houses  of  the  Minneapolis  Chamber  of  Commerce,  the 
Kansas  City  Board  of  Trade  and  the  other  secondary  future 
markets  are  used  to  keep  all  open  trades  margined  to  the 
market  daily.  In  these  cases  the  clearing  house  actually 
assumes  the  position  of  buyer  to  the  seller,  and  of  seller  to  the 
buyer.  The  member  filing  his  daily  clearing  sheet  files  with 
it  a  check  to  make  good  his  margins,  if  the  market  has  gone 
against  him,  or,  in  the  event  the  market  has  moved  in  his 
favor,  he  receives  a  check  from  the  clearing  house.  A  cer- 
tain degree  of  joint  protection  is  thus  afforded  all  traders 
which  is  absent  in  the  Chicago  system,  as  will  be  explained. 
The  Minneapolis  clearing  system  (as  we  may  call  it  for 
short)  is  based  on  a  clearing  house  which  is  a  separate  corpo- 
ration from  the  Exchange,  and  is  a  financial  institution  with 
adequate  funds  to  protect  traders.  The  Chicago  clearing 
house  is  entirely  different,  being  sometimes  referred  to  as  a 
mere  " post-office"  of  the  Board  of  Trade  for  the  exchanging 
of  checks  and  the  handling  of  margin  certificates.  The 
Chicago  system  has  been  in  force  36  years,  and  many  un- 


THE    CTTI(1AC,0    BOARD    OF    TRADE  79 

successful  attempts  have  been  made  to  change  over  to  the 
Minneapolis  system.  Thus  far  the  majority  of  members 
apparently  favor  the  old  plan. 

Organization. — The  Clearing  House  of  the  Chicago  Board 
of  Trade  is  in  charge  of  the  Clearing  House  Committee, 
which  consists  of  three  persons  chosen  by  and  from  the 
Board  of  Directors.  The  Clearing  House,  as  such,  has  no 
capital  stock  or  assets  of  any  kind,  but  is  a  mere  department 
of  the  Board  of  Trade.  There  are  at  present  (1919)  160 
members  of  the  Clearing  House,  representing  the  following 
activities:  cash  grain;  pit  scalpers;  brokers;  terminal  eleva- 
tors; private  wire  houses;  cold  storage;  meat  packing.  Firms 
not  holding  memberships  in  the  Clearing  House  clear  their 
trades  through  members.  The  income  of  the  Clearing 
House  is  derived  from  two  sources — fees  for  clearing  and 
fines.  The  clearing  fee  is  1  1/2  cents  for  each  item  on  the 
daily  clearing  sheet.  Fines  are  as  follows:  $5.00  if  late  to 
the  clearing  house;  $1.00  for  each  error  on  the  clearing  sheet. 

Operation. — The  Clearing  House  of  the  Chicago  Board 
of  Trade  is  used  for  settling  closed  trades  only.  In  other 
words,  the  party  doing  the  clearing  must  first  have  bought 
and  sold  an  equal  amount,  and  of  course  for  the  same  de- 
livery month.  A  man  who  has  bought  100  May  corn  and 
sold  50  May  corn,  is  obviously  "even"  on  50  corn,  and  is 
still  "long"  50  May  corn.  The  closed  trade  on  50  corn  he 
will  settle  through  the  Clearing  House. 

Trades  are  closed  in  three  ways,  taking  the  buyer,  for  an 
example:  (1)  by  taking  delivery  of  the  grain  itself;  this  is 
done  by  feeders,  shippers  and  others  needing  grain:  (2)  by 
receiving  a  delivery  notice  that  the  grain  is  in  store,  ready 
for  delivery,  which  delivery  notice  is  passed  on  from  hand  to 
hand,  till  it  reaches  the  feeder,  shipper,  etc.,  who  wants  the 


80       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

grain:  (3)  by  selling  in  the  pit  to  "even"  or  " close"  the 
trade.  Most  future  trades  are  closed  this  way.  An  open 
trade  cannot  be  settled  through  the  clearing  house.  Closed 
trades  (i.  e.,  bought  and  sold  amounts  equal)  are  settled  in 
two  ways,  (a)  by  direct  settlement,  and  (b)  by  ringing  out. 

A  direct  settlement  occurs  when  only  two  parties  are  con- 
cerned in  the  trade,  as  illustrated  by  the  case  below : 

Direct  Settlement 

A  buys  from  B  100  May  oats  at  81. 

B  buys  of  A  100  May  oats  at  79. 

This  is  reported  to  the  clearing  house  as  a  direct  settle- 
ent.  A  owing  the  clearing  house  $2000  and  B  claiming  from 
the  clearing  house  $2000. 

However,  most  closed  trades  are  settled  by  ringing  out, 
and  it  will  be  necessary  to  explain  what  rings  are  and  why 
and  how  they  are  made.  A  ring  consists  of  a  chain  of  buyers 
and  sellers,  each  of  whom  has  bought  and  has  sold  the  same 
amount.  Take  the  following  typical  case,  for  illustration : 

Ring  Settlement 

Adams  buys  200  May  oats  of  Bryan  at  90.  Bryan  buys 
200  May  oats  of  Call  at  89.  Call  buys  200  May  oats  of  Dole 
at  85.  Dole  buys  200  May  oats  of  Ellis  at  85.  Ellis  buys 
200  May  oats  of  Franz  at  80.  Franz  buys  200  May  oats  of 
Adams  at  79. 

Here  is  a  six-name  ring.  Rings  are  formed  by  clerks  of 
the  various  houses,  designated  Settlement  Clerks,  who  con- 
gregate mornings  in  a  noisy  group  in  the  lower  hall  of 
the  Board  of  Trade  building,  and  there,  by  dint  of  much 


THE  CHICAGO  BOARD  OF  TRADE  81 

shouting  and  running  about  and  inspecting  of  "long  and 
short  "  memorandum  books  of  fellow  clerks  manage  to 
form  rings  of  the  trades  on  their  books.  The  ring  is  then 
entered  upon  the  firm's  Ring  Book.  By  following  out  the 
settlement  of  this  six-name  ring,  the  reader  will  see  that 
it  is  the  simplest  and  the  cheapest  way  to  make  the  settle- 
ment. Each  of  the  six  traders  in  this  ring  enters  in  his 
Ring  Book  his  own  ring  only,  i.e.,  to  whom  sold  and  price,  of 
whom  bought  and  price.  A  daily  settlement  price  is  posted 
daily  by  the  Board  of  Trade  is  a  convenient  basis  for  calcu- 
lating balances  due. 

Six  Name  Ring  Becomes  Six  Rings 

Settling  Price  85 

Adams'  ring  Owe  Collect 

Sold  to  Franz  200  May  oats  at  79 $12,000 

Bought  of  Bryan  200  May  oats  at  90 10,000 

Bryan's  ring 

Sold  to  Adams  200  May  oats  at  90 $10,000 

Bought  of  Call  200  May  oats  at  89 8,000 

Call's  ring 

Sold  to  Bryan  200  May  oats  at  89 8,000 

Bought  of  Cole  200  May  oats  at  85 

Dole's  ring 

Sold  to  Call  200  May  oats  at  85 

Bought  Ellis  200  May  oats  at  85 

Ellis'  ring 

Sold  to  Dole  200  May  oats  at  85 

Bought  of  Franz  200  May  oats  at  80 10,000 

Franz's  ring 

Sold  Ellis  200  May  oats  at  80 10,000 

Bought  of  Adams  200  May  oats  at  79 12,000 

$40,000       $40,000 


SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

When  the  clearing  sheets  have  come  in  from  those1  six 
firms  and  the  six  rings  have  been  checked,  they  will  bo  found 
to  balance,  and  five  checks  will  settle  all  these  trades.  In 
actual  practice,  a  firm  will  form  many  rings  in  one  day. 
These  will  all  be  reported  on  the  daily  clearing  sheet  and  one 
check  will  settle  the  entire  day's  balance.  Some  of  these 
trades  have  been  open  many  days:  some  are  trades  made 
that  day  in  the  pit.  Thus  we  see  that  in  the  Clearing  House 
system  now  in  vogue  in  Chicago,  only  closed  trades  are 
cleared,  and  only  balances  due  on  the  day's  closed  trades  are 
paid  through  the  Clearing  House.  In  other  words,  the  day's 
clearings  give  no  indication  of  the  actual  volume  of  bushels 
traded  in  for  the  day  and  has  no  relation  to  such  volume. 
Since  in  practice  most  future  trades  are  finally  settled  by 
offsetting  other  trades  against  them  (paying  the  balances  due 
in  money),  the  question  of  the  legality  of  such  forms  of 
trading  has  often  been  raised. 

Legality  of  Settling  by  Offsets. — Sometimes  the  charge  is 
made  that  contracts  for  future  delivery  which  are  settled  by 
offsets  instead  of  actual  delivery  are  mere  gambling  transac- 
tions. There  are  two  reasons  for  saying  such  dealings  are 
not  gambling.  The  first  reason  is,  any  trader  can  always 
stand  on  his.  contract  and  call  for  and  receive  the  grain,  for 
the  trade  is  an  unconditioned  contract.  The  second  reason 
is,  the  courts  of  the  land,  including  the  United  States  Su- 
preme Court,  have  upheld  as  legal  this  form  of  trading  on 
the  Chicago  Board  of  Trade.  In  what  is  known  as  the 
Christie  Case  (Board  of  Trade  v.  Christie,  198  U.  S.  236), 
decided  May  8,  1905,  the  Supreme  Court  of  the  United 
States  used  this  language: 

"When  the  Chicago  Board  of  Trade  was  incorporated  we 
cannot  doubt  that  it  was  expected  to  afford  a  market  for 


TFfE    CHICAGO    BOARD    OF   TRADE  83 

future  as  well  as  present  sales  with  the  necessary  incidents  of 
such  a  market  and  while  the  State  of  Illinois  allowed  that 
charter  to  stand,  we  cannot  believe  that  the  pits,  merely  as 
places  where  future  sales  are  made,  are  forbidden  by  the  law. 
But  again,  contracts  made  in  the  pits  are  contracts  between 
members.  We  must  suppose  that  from  the  beginning  as 
now  if  a  member  had  a  contract  with  another  member  to  buy 
a  certain  amount  of  wheat  at  a  certain  time  and  another  to 
sell  the  same  amount  at  the  same  time,  it  would  be  deemed 
unnecessary  to  exchange  warehouse  receipts.  We  must 
suppose  that  then  as  now,  a  settlement  would  be  made  by 
the  payment  of  differences,  after  the  analogy  of  a  clearing 
house.  This  naturally  would  take  place  no  less  that  the 
contracts  were  made  in  good  faith  for  actual  delivery,  since 
the  results  of  actual  delivery  would  be  to  leave  the  parties 
just  where  they  were  before.  Set-off  has  all  the  effects  of 
delivery.  The  ring  settlement  is  simply  a  more  complex 
case  of  the  same  kind. 

"It  seems  to  us  an  extraordinary  and  unlikely  proposition 
that  the  dealings  which  give  its  character  to  the  great  market 
for  future  sales  in  this  country  are  to  be  resisted  as  mere 
wagers  or  as  '  pretended  '  buying  or  selling,  without  any  in- 
tention of  receiving  and  paying  for  the  property  bought,  or 
of  delivering  the  property  sold,  within  the  meaning  of  the 
Illinois  act.  Such  a  view  seems  to  us  hardly  consistent  with 
the  admitted  fact  that  the  quotation  of  prices  from  the  mar- 
ket are  of  the  utmost  importance  to  the  business  world,  and 
not  least  to  the  farmers;  so  important,  indeed,  that  it  is 
argued  here  and  has  been  held  in  Illinois  that  the  quotations 
are  clothed  with  a  public  use.  It  seems  to  us  hartfly  consist- 
ent with  the  obvious  purposes  of  the  Board  of  Trade's  char- 
ter, or  indeed,  with  the  words  of  the  statute  invoked.  The 


<S4       SPKCl'LAT.O.X    AND       Till:    CHICAGO    liOAltD    OK    TRADE 

sales  in  the  pit  are  not  pretended,  but  as  we  have  said,  are 
meant  and  supposed  to  be  binding.  A  set-off  is  in  legal 
effect  a  delivery.  We  speak  only  of  contracts  made  in  the 
pits,  because  in  them  the  members  are  principals.  The  sub- 
sidiary rights  of  their  employers  where  the  members  buy  as 
brokers,  we  think  it  unnecessary  to  discuss. 

"  In  the  view  which  we  take  the  proportion  of  the  dealings 
in  the  pit  which  are  settled  in  this  way  throws  no  light  on  the 
question  of  the  proportion  of  serious  dealings  for  legitimate 
business  purposes  to  those  which  fairly  can  be  classed  as 
wagers  or  pretended  contracts.  No  more  does  the  fact  that 
the  contracts  thus  disposed  of  call  for  many  times  the  total 
receipts  of  grain  at  Chicago.  The  fact  that  they  can  be  and 
are  set-off  sufficiently  explains  the  possibility,  which  is  no 
more  wonderful  than  the  enormous  disproportion  between 
the  currency  of  the  country  and  contracts  for  the  payment 
of  money,  many  of  which  in  like  manner  are  set  off  in  clear- 
ing houses  without  anyone  dreaming  that  they  are  not  fair, 
and  for  the  rest  of  which  the  same  money  suffices  in  succes- 
sion, the  less  being  needed  the  more  rapid  the  circulation  is." 

Supplementing  the  last  point  in  the  above  court  decision, 
attention  may  be  called  to  the  ease  with  which  our  Govern- 
ment, in  the  World  War,  borrowed  $25,000,000,000  from  the 
people,  promising  to  repay  it  in  gold,  although  our  total 
money  in  the  country  was  only  some  three  billion  dollars: 
and  at  the  same  moment,  our  banks  held  on  deposit,  subject 
to  check,  payable  in  cash  on  demand  some  $20,000,000,000 
more  of  '  credit  money."  In  a  similar  manner,  the  future 
trade  in  contracts  for  grain  (promises  to  pay  grain)  greatly 
exceed  the  amount  of  real  grain,  just  as  our  credit  currency 
(promises  to  pay  money)  greatly  exceeds  the  amount  of 'real 
money  in  the  country.  Both  are  esses  of  mobilizing  credit. 


THE    rmCACO    HOARD    OF    TKAl)E  85 

And  credit  is  defined  as  a  "promise  to  pay."  And  credit  is 
kept  good  only  by  meeting  the  promise — by  fulfilling  the 
contract.  And  modern  commerce  continues  to  use  more 
and  more  credit,  instead  of  less  and  less  credit. 

Margins  and  Margin  Certificates. — The  rules  of  the 
Board  of  Trade  permit  members  trading  with  each  other,  to 
call,  each  upon  the  other,  for  a  margin  up  to  10  per  cent, 
to  protect  the  trade.  Whether  this  amount  of  margin  or 
any  margin  at  all  is  actually  called  for  depends  largely  on 
the  size  of  the  trade  and  the  standing  of  the  member.  The 
intimate  daily  business  contact  of  members  with  one  another 
enables  them  to  make  their  practice  in  this  matter  conform 
to  sound  business  principles.  In  dealing  with  the  country 
customers  (who  are  not  members)  no  rule  of  the  Board 
applies.  Margins  are  doubtless  called  from  these  customers 
in  most  cases.  It  is  true,  however,  that  credit  is  rather 
freely  extended  to  the  country  in  these  matters,  the  member 
of  the  Board  thus  assuming  the  risks. 

Doubtless  no  rule  of  the  Board  could  or  should  determine 
how  much  credit  for  margining  trades  any  house  should  ex- 
tend to  its  friends.  But  it  would  seem  to  be  a  matter  of 
public  policy  to  throw  more  safeguards  around  the  amateur 
speculator  who  for  the  first  time  is  opening  a  speculative 
account.  There  should  certainly  be  a  strict  enforcement  of 
some  margin  rule.  A  decent  respect  to  that  growing  force 
known  as  public  opinion  warrants  an  increase  in  the  size  of 
the  usual  margin  up  to  20  per  cent  for  non-members,  in  order 
to  discourage  speculation  by  those  who  are  financially  unfit. 

As  the  market  moves  up  or  down,  as  the  case  may  be,  the 
house  usually  calls  on  its  short  or  its  long  customers  for  addi- 
tional margins  to  protect  their  trades.  When  "called  "  for  a 
margin,  the  member  of  the  clearing  house  must  promptly 


86       SPECULATION   AND   THE    CHICAGO    BOARD    OF  TRADE 

deposit  the  margin  in  a  bank  which  is  on  the  list  of  banks 
authorized  by  the  clearing  house  to  handle  margin  deposits. 
This  Clearing  House  Bank  then  issues  a  memorandum  or 
notice  to  the  clearing  house  of  such  a  deposit.  This  bank 
also  makes  out  a  "margin  certificate  "  in  duplicate,  one  copy 
of  which  is  kept  by  the  depositor  and  the  other  copy  is  filed 
with  the  clearing  house.  The  bank  deposit  is  the  security 
which  protects  the  trade.  Upon  the  settlement  of  the 
future  contract,  the  margin  is  released  to  the  depositor.  The 
payment  to  the  depositor — or  to  the  house  calling  the  mar- 
gin, in  case  the  change  in  the  market  wipes  out  the  margin — 
is  effected  by  the  joint  indorsement  of  the  margin  certificate 
by  the  parties  to  the  trade.  If  there  is  a  failure  to  adjust  and 
settle  the  respective  claims  of  the  parties  upon  the  deposit, 
within  three  days  after  the  maturity  of  the  contract  then 
either  party  may,  upon  application,  have  a  committee  of 
three  disinterested  members  decide  the  case.  When  so  de- 
cided, the  president  of  the  Board  indorses  either  the  original 
or  the  duplicate  margin  certificate,  directing  the  payment  of 
the  deposit  in  accordance  with  the  decision  of  the  committee. 

Arguments  for  and  against  the  Chicago  Clearing  House 
System. — For  many  years  past  there  has  been  much  dis- 
cussion among  the  directors  of  the  Board  of  Trade  concern- 
ing a  change  in  the  clearing  house  system.  In  1917  a  special 
clearing  house  committee  reported  to  the  Board  of  Directors 
that  "it  is  of  the  unanimous  opinion  that  the  present  method 
of  clearing  trades  should  be  changed,  and  further  recom- 
mends the  adoption  of  the  so-called  Corporation  System." 
No  action  was  taken,  however. 

During  the  five-year  period,  1913-1917,  no  subject  re- 
ceived more  attention  from  the  directors,  with  the  possible 
exception  of  bucket  shops  and  private  wire  houses. 


THE  CHICAGO  BOARD  OF  TRADE  87 

Friends  of  the  present  system  defend  it  on  various  grounds. 
They  say  it  affords  necessary  privacy  to  the  houses' s  confi- 
dential business  affairs,  such  as  the  volume  of  open  trades, 
to  what  extent  the  house  is  long  or  is  short,  etc.  And  under 
the  other  system,  it  is  contended,  it  would  be  impossible  to 
keep  secret  this  valuable  information,  being  handled,  as  it 
would  be,  by  a  large  body  of  clerks.  However,  it  may  be 
rejoined,  that  the  present  method  of  having  a  small  army  of 
settlement  clerks  comparing  long  and  short  accounts  and 
forming  rings  is  far  from  affording  secrecy  to  the  condition  of 
a  house's  books.  Again  it  is  argued  that  the  new  plan  would 
be  more  expensive  and  would  tie  up  more  money  in  margins. 

Again,  it  is  argued  that  the  courts  have  passed  on  this 
system  and  held  it  to  be  legal,  therefore  it  is  safest  not  to  de- 
part from  it. 

The  business  is  too  big  to  handle  that  way,  argue  some. 
But  from  the  standpoint  of  clerks  involved  and  physical 
equipment  needed,  it  is  likely  that  the  new  system  would 
prove  workable  with  fewer  clerks  and  less  equipment  than 
the  present  system. 

Under  the  new  system  the  losses  from  defaults,  etc.,  falling 
upon  individual  members  would  fall  on  the  Clearing  House 
Association  itself,  which  would  accumulate  a  fund  for  the 
purpose  of  meeting  such  losses.  And  when  trades  are 
margined  to  the  market  every  day,  losses  are  thereby  greatly 
reduced  both  in  number  and  size.  Without  making  burden- 
some charges,  the  Clearing  House  Association  would  ac- 
cumulate a  surplus  to  meet  losses. 

It  is  argued  by  a  few  that  the  new  system  would  disclose 
the  volume  of  future  trading,  and  show  it  to  be  out  of  pro- 
portion to  the  cash  grain  handled  by  members  of  the  Board. 
But  the  United  States  Supreme  Court  has  upheld  the  legal- 


88       SSl'iaTLATIOX    AND    THE    CHICAGO    BOARD    OF    TRADE 

ity  of  this  future  trading  regardless  of  the  volume  of  it,  and 
has  decided  that  the  small  volume  of  deliveries  on  future 
contracts  does  not,  in  view  of  the  large  and  unascertainable 
volume  of  hedging  trades,  prove  such  future  trading  to  be 
gambling.  The  large  volume  of  future  trading — trading  in 
contracts — may  be  looked  on  as  similar  to  the  large  volume 
of  credit  transactions  compared  with  the  volume  of  money 
in  the  country. 

(8)  Option  Trading. — Future  trading  is  sometimes 
wrongly  called  option  trading.  A  future  trade  is  an  uncon- 
ditioned contract,  and  hence  it  cannot  rightly  be  called  an 
option.  The  regular  hours  for  future  trading  on  the  Ex- 
change are  from  9:30  in  the  morning  to  1:15.  There  has 
grown  up  a  custom  among  certain  members — very  largely 
speculators — to  gather  in  the  pits  from  1:30  to  2:30  for  a 
form  of  trading  technically  known  as  bids  and  offers,  or 
indemnities.  It  is  also  sometimes  termed  puts  and  calls. 
This  trading  is  option  trading.  That  is,  the  buyer  of  a  put 
has  the  right,  up  to  a  certain  time  next  day,  to  deliver  a  def- 
inite amount  of  grain  at  a  definite  price  named.  He  has  the 
"option  "  to  deliver  or  not  to  deliver,  if  he  has  bought  the 
put.  Conversely,  if  he  has  bought  a  call,  he  has  the  option 
of  calling  for  the  grain.  In  practice,  in  this  so-called  indem- 
nity trading  grain  is  not  handled,  but  merely  the  balances  are 
paid  to  effect  the  settlement.  It  is  looked  on  as  buying  insur- 
ance4. The  system  is  defended  by  certain  cash  grain  inter- 
ests, particularly  the  large  exporters  and  large  shippers  to 
eastern  markets,  on  the  grounds  that  it  protects  them  in 
making  overnight  offers.  It  is  their  custom,  they  say,  to 
submit  large  offers  to  these  eastern  and  foreign  buyers, 
having  first  insured  themselves  by  their  trade  in  "indemni- 
ties." There  is  no  doubt  that  the  system  is  used  to  a  certain 


THE  CHICAGO  BOARD  OF  TRADE  89 

small  extent  for  such  insurance.  It  is  not  clear  to  the 
writer,  however,  why  this  insurance  cannot  be  equally  well 
secured  by  hedging  in  the  pit,  since  the  put  or  call  is  usually 
several  cents  from  the  market  price.  At  any  rate  the  trade 
in  "bids  and  offers,"  calling  for  smaller  cash  margins  (five 
dollars  on  5000  bushels),  should  be  resolutely  and  rigidly 
governed  by  the  Board,  lest  it  be  used  as  a  bait  to  lure  in  the 
small  amateur  speculator.  For  the  spirit  of  the  times  de- 
mands that  speculation  be  not  made  easier  but  harder  for 
the  beginner. 

(9)  The  Bucket  Shop  Fight— The  Quotations.— There 
is  no  more  dramatic  story  in  all  economic  history  than  that 
of  the  rise  and  fall  of  the  bucket  shops.  The  fight  of  the 
Chicago  Board  of  Trade  against  bucket  shops  had  its  be- 
ginnings as  early  as  the  year  1883.  As  an  epitome  of  this 
struggle  we  may  quote  the  letter  of  the  attorney  of  the 
Board  filed  with  the  Directors  in  1916 — thirty-three  years 
after  the  battle  first  began. 

(Copy) 

Chicago,  April  14,  1916. 
Mr.  J.  C.  F.  Merrill, 
Secretary,  Board  of  Trade. 
Dear  Sir: — 

I  am  glad  to  be  able  to  inform  you  that  a  letter  received  from 
Pittsburg  today  tells  me  that  in  a  quo  warranto  proceedings  in- 
stituted at  Harrisburg  by  the  Attorney  General  against  the  Con- 
solidated Stock  and  Produce  Exchange  at  Pittsburg  a  judgment  of 
ouster,  with  forfeiture  of  charter,  has  been  entered  and  this  trouble- 
some fake  exchange  is  at  the  end  of  its  career. 

This  is  the  culmination  of  the  plan  that  I  suggested  to  the  Attor- 
ney General,  and  he  is  entitled  to  great  credit  for  having  so  efficiently 


90       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

and  expeditiously  pushed  the  matter  to  a  favorable  outcome.  The 
plan  also  included  criminal  prosecution  against  the  Pennsylvania 
members  of  this  exchange.  These  have  resulted,  as  you  know,  in 
most  of  the  defendants  pleading  guilty  and  taking  suspended  jail 
sentences.  I  have  been  in  conference  and  correspondence  with  the 
Department  of  Justice  at  Washington,  which  I  am  hoping  will  result 
in  drastic  action  against  the  bucket  shop  men  outside  Pennsylvania 
who  have  been  concealing  themselves  behind  this  fake  exchange. 
At  no  time  before,  since  the  bucket  shop  evil  started,  has  the  coun- 
try, east  and  west,  been  so  free  from  bucket  shops. 

(Signed)  H.  S.  Robbins,  Attorney. 

A  bucket  shop  may  be  defined  as  a  fake  exchange.  Its 
existence  depends  on  receiving  continuous  market  quota- 
tions from  a  real  exchange.  Since  the  Chicago  Board  of 
Trade  is  the  world's  largest  future  grain  market,  the  Chicago 
quotations  were  used  by  the  bucket  shops.  A  bucket  shop 
equipment,  therefore,  consisted  of  a  telegraph  or  telephone 
wire  connection  with  the  source  of  the  quotations:  of  a 
blackboard  for  posting  these  quotations  (ostensibly  as  fast 
as  they  arrived  and  at  the  same  prices).  The  so-called 
trades  received  by  the  bucket-shop  were  not  executed  on  any 
exchange,  and  hence  did  not  become  contracts  for  buying  or 
selling  grain.  The  trades  were  "bucketed,"  that  is,  the  other 
side  of  the  customer's  trade  was  taken  by  the  bucket  shop. 
Trading  was  on  very  small  margin,  so  that  the  clerk,  the  day 
laborer,  the  barber,  the  newsboy  and  the  bootblack  could 
"get  in."  For  instance,  it  is  said  many  bucket  shops  would 
accept  a  margin  of  five  dollars  or  even  less.  Now,  a  very 
little  examination  of  bucket  shop  methods  shows  why  the 
customer  must  in  most  cases  lose  in  this  sort  of  a  gambling 
game.  This  is  true  because  the  margin  is  so  small  that  it  is 
wiped  out  and  the  "trade  "  closed  out  before  the  customer  is 


THE  CHICAGO  BOARD  OF  TRADE  91 

ready  to  cash  in  on  his  winnings.  The  customer,  like  all 
speculators,  has  a  nervous  confidence  that  luck  is  sure  to 
favor  him.  He  either  buys  or  sells,  knowing  the  market 
can  only  move  in  two  directions — up  or  down.  Suppose  he 
buys,  at  $1.00,  expecting  the  market  to  rise.  The  market 
fluctuates.  His  margin,  $5.00  on  1000  bushels,  covers  a 
fluctuation  of  1/2  cent  a  bushel.  The  market  may  rise  to 
100  1/2  to  101:  but  he  delays  cashing  in,  buoyed  by  hope 
(and  certainty)  that  it  is  going  higher.  It  falls  to  99  1/2. 
His  margin  is  "  wiped  out."  His  trade  is  closed.  He  has 
lost  $5.00.  A  similar  situation  exists  when  he  sells  short, 
except  that  he  wants  the  market  to  drop.  Now,  it  is  obvious 
that  by  delaying  quotations,  or  by  posting  bogus  quotations, 
the  bucket  shop  can  so  juggle  the  quotations  as  to  reduce 
still  more  the  customer's  small  chance  of  winning.  And  since 
most  amateurs  take  the  bull  side  of  the  market,  the  bucket 
shop's  problem  is  simplified. 

Bucket  shops  bore  many  superficial  resemblances  to  the 
branch  offices  of  exchange  houses.  And  they  had  the  effect 
therefore  of  bringing  into  general  disrepute  the  legitimate 
exchanges.  It  was  evidently  a  matter  of  self-preservation 
for  the  legitimate  exchanges,  therefore,  to  combat  to  the 
death  these  bogus  institutions.  Otherwise  an  exasperated 
public  would  rise  in  its  wrath  and  wipe  them  all  out  of  exist- 
ence together. 

The  Board  of  Trade  of  Chicago  frankly  admits  it  was  act- 
ing on  the  principle  of  enlightened  self-interest  when  it 
waged  against  these  bucket  shops  the  war  lasting  so  many 
years  and  costing  the  Board  hundreds  of  thousands  of 
dollars,  and  the  expulsion  of  nine  of  its  own  members.  For 
it  is  almost  incredible  the  uncanny  strength  and  vitality 
possessed  by  these  bastard  institutions.  Only  a  brief  ac- 


92       SPECULATION   AND    THE    CHICAGO    BOARD    OF    THAI) I] 

count  of  this  interesting  and  dramatic  bit  of  Board  of  Trade 
history  can  be  given  here. 

The  bucket-shop  fight  was  foreshadowed  in  a  clash  with 
the  Western  Union  Telegraph  Company  in  1868. 

The  following  resolution  was  adopted  by  the  Directors, 
March  26, 1868:  "  Whereas,  This  Board  has  from  time  to  time 
been  deprived  of  its  regular  market  reports  from  New  York, 
through  the  neglect,  designed  or  otherwise,  of  the  officials  of 
the  Western  Union  Telegraph  Company,  while  this  same 
company  have  never  failed  to  supply  a  private  telegram  of 
which  they  are  the  proprietors,  to  the  detriment  of  public 
business  and  in  violation  of  their  own  rules,  in  giving  pref- 
erence to  their  own  dispatches;  therefore, 

"  Resolved,  That  this  Board  will  hail  with  gratitude  any 
relief  from  the  present  mismanagement  and  monopoly  of  the 
Western  Union  Telegraph  Company  and  to  this  end  would 
extend  a  hearty  welcome  and  support  to  the  Pacific  and  At- 
lantic Telegraph  Company,  which  we  understand  is  about 
to  extend  its  line  from  Cincinnati." 

The  problem  of  owning  and  controlling  the  market  quo- 
tations was  the  fundamental  issue  at  stake  here — and  a 
problem  destined  to  cause  much  trouble  later  on. 

In  1876  the  first  bucket  shop  opened  in  Chicago,  under  the 
name  of  Rumble  &  Company.  Two  years  later  there  was 
another— the  "Free  Board  of  Trade."  In  the  year  1882  the 
Board  began  to  consider  seriously  the  curbing  of  the  bucket- 
shop  evil,  and  the  idea  was  advanced  of  cutting  off  their 
quotations.  At  the  Grand  Jury  hearings  in  January  of  this 
year,  eight  bucket  shops  were  reported  on.  In  February 
the  Board  asked  the  Western  Union  Telegraph  Company  to 
consider  the  propriety  of  ceasing  to  furnish  quotations  to 
bucket  shops.  The  Board  later  made  a  formal  request  of  the 


THE  CHICAGO  BOARD  OF  TRADE  93 

Telegraph  Company  to  cease  furnishing  to  the  bucket  shops 
market  quotations  collected  on  the  floor  of  the  Exchange. 
The  Telegraph  Company  was  realizing  too  much  revenue 
from  this  business,  however,  to  lend  a  friendly  ear  to  any  such 
proposal  or  request. 

A  large  share  of  the  discussion  in  the  Directors'  meetings 
during  the  years  1883,  1884,  1885,  1886  and  1887  was  de- 
voted to  the  bucket-shop  evil.  The  bucket  shops,  once 
flourishing  in  all  cities  and  in  many  small  towns,  seemed  on 
the  decline.  By  the  year  1888  the  report  was  made  that  the 
bucket  shops  of  the  country  were  nearly  all  closed.  The 
courts  had  begun  to  recognize  their  illegitimate  nature. 
However,  in  1889  came  a  court  decision  that  threw  the 
whole  matter  back  into  chaos.  It  was  a  pro-bucket  shop 
decision,  holding  that  quotations  were  public  property  and 
could  not  legally  be  withheld  from  bucket  shops.  This 
opened  up  again  not  only  the  old  bucket  shops,  but  encour- 
aged new  ones  to  start.  This  decision  of  the  courts  had  one 
good  effect,  at  any  rate.  It  clarified  the  issue  and  brought 
matters  to  a  focus.  The  quotation  problem  must  be  solved. 

In  1890  the  Board  of  Trade  decided  to  stop  all  quota- 
tions. This  meant  more  or  less  injury  to  the  Board  members 
themselves,  but  nevertheless  the  embargo  on  the  continuous 
distribution  of  quotations  was  put  into  effect.  But  in  ways 
that  were  devious,  and  ingenious  to  say  the  least,  the  bucket- 
shop  experts  were  able  to  steal  the  quotations.  In  some 
cases  a  confederate  on  the  floor  of  the  Exchange  signalled 
the  quotations  to  an  office  window  across  the  street.  In 
some  cases  telephone  wires  were  tapped.  In  some  manner 
the  quotations  got  into  the  hands  of  the  persistent  bucket 
shops.  President  William  T.  Baker  was  reflected  presi- 
dent in  1891  on  the  issue  of  embargoing  the  continuous  quo- 


94        SPECULATION    AND    THE    CHICAGO    BOARD    OP    TRADE 

tations.  He  looked  upon  the  Western  Union  Telegraph 
Company  as  a  "  secret  enemy"  of  the  Board  of  Trade. 
Since  the  embargo  failed  to  accomplish  its  purpose  it  was 
removed  in  1892  and  open,  continuous  quotations  were 
again  sent  over  the  telegraph  wires.  By  the  close  of  1895 
there  were  eighty  bucket  shops  in  Chicago  alone. 

Under  the  presidency  of  William  S.  Warren  the  bucket- 
shop  fight  was  kept  up,  and  with  a  better  degree  of  success. 
Mr.  Warren  called  a  convention  of  all  leading  grain  ex- 
changes to  discuss  ways  and  means  of  fighting  the  bucket- 
shop  evil.  A  national  anti-bucket  shop  law  was  considered. 

It  rested  in  the  end,  however,  with  the  attorney  of  the 
Board  to  formulate  and  execute  a  plan  which  solved  the 
quotation  problem  and  gave  a  quietus  to  the  bucket-shop 
curse.  This  "finish  fight  "  occurred  in  the  year  1900. 

A  company  was  formed  by  the  name  of  the  Cleveland 
Telegraph  Company  whose  purpose  was  to  wrest  the  con- 
trol of  quotations  from  the  Western  Union  Telegraph  Com- 
pany. When  all  preparations  were  fully  made,  notice  was 
served  on  the  Western  Union  that  after  June  1  the  Board  of 
Trade  would  collect  its  own  quotations  and  assume  control 
of  the  wires  and  instruments  on  the  floor  of  the  Exchange. 
The  Western  Union  at  this  time  was  deriving  considerable 
revenue  from  bucket  shops.  The  Cleveland  Telegraph 
Company,  under  control  of  the  Board  of  Trade,  was  given 
exclusive  right  to  collect  quotations  on  the  floor  of  the  Ex- 
change, and  to  distribute  them  in  Chicago.  Quotations  were 
furnished  to  the  Western  Union  and  other  companies  only 
on  the  express  agreement  not  to  furnish  these  quotations  to 
bucket  shops. 

The  Western  Union  and  the  Postal  Telegraph  Companies 
signed  contracts  early  in  1901,  paying  the  Board  of  Trade 


THE  CHICAGO  BOARD  OF  TRADE  95 

$30,000  annually  for  the  quotations;  agreeing  to  furnish 
these  to  only  those  applicants  approved  by  the  Board  of 
Trade;  and  to  cut  off  these  quotations  at  any  time  on  de- 
mand by  the  Board  of  Trade.  This  put  into  the  hands  of 
the  Board  the  power  to  "choke  off"  any  bucket  shop  by 
shutting  off  its  quotations.  The  leading  grain  exchanges 
subscribed  for  the  new  quotation  service,  and  continuous 
quotation  service  was  resumed  April  15,  1901. 

It  was  now  a  question  of  preventing  the  bucket  shops 
from  securing  the  quotations  either  secretly  or  fraudulently. 
The  Civic  Federation  and  finally  the  federal  Government 
joined  in  the  fight.  Suits  were  filed  against  bucket  shops  in 
Ohio,  Illinois,  Nebraska  and  Wisconsin.  During  the  single 
year  1902  there  were  seventy  injunctions  obtained  against 
bucket  shops. 

The  final  triumph  by  the  Board  of  Trade  was  won  in  1905, 
when  the  United  States  Supreme  Court  (in  the  Christie  case) 
handed  down  a  decision  to  the  effect  that  the  Board  of  Trade 
owned  and  could  control  its  quotations;  they  were  its  prop- 
erty. The  Board  now  went  about  the  work  systematic- 
ally of  ridding  the  whole  United  States  of  bucket  shops, 
being  aided  by  the  legal  departments  of  the  various  States 
and  by  the  federal  Government.  A  special  detective  was 
put  on  the  road,  commissioned  to  ferret  out  every  fake  ex- 
change in  the  country.  He  found  that  these  bucket  shops 
when  killed  off  one  week  would  reopen  the  next  week  under 
a  new  name.  As  public  sentiment  gradually  became  in- 
formed, however,  the  bucket  shops  more  and  more  disap- 
peared from  the  map.  The  Pittsburg  one,  referred  to  in  the 
opening  paragraph  above,  was  one  of  the  most  genteel, 
the  most  eminently  "respectable"  in  appearance,  the  most 
subtle  in  its  remote  ramifications,  so  that  it  successfully  re- 


'.)()        Sl'KriTLATIOX    AXI)    THE    CHICAGO    ItOAUD    OK    TllADK 

sisted  all  assaults  for  a  number  of  years.  The  Board  de (ce- 
ll ve  is  still  employed  and  has  occasion  even  yet  to  take  the 
field  to  put  down  some  fake  "grain  exchange." 

The  Board  is  entitled  to  credit  for  fighting  continuously 
and  successfully  against  a  powerful  and  organized  group  of 
gamblers  and  swindlers  masquerading  under  the  respect- 
able name  of  " grain  commission"  houses  and  " grain  ex- 
changes. " 

Market  News  Service. — To  safeguard  the  dissemination 
of  continuous  market  quotations,  and  especially  to  keep 
such  quotations  from  bucket  shops,  a  Market  Reports 
Committee  has  charge  of  this  whole  matter.  A  very  strict 
control  and  supervision  is  maintained  over  private  wire 
houses  with  their  numerous  branch  offices.  This  committee 
employs  one  expert,  a  member  of  the  Board  of  many  years' 
standing,  to  give  his  entire  time  to  the  enforcement  of  the 
numerous  rules  and  regulations  which  have  gradually  grown 
up,  covering  the  general  field  of  market  news  service.  The 
activities  of  this  expert  are  diverse.  The  "crop  killer"  has 
been  killed.  Formerly,  it  was  possible  to  manipulate  the 
market,  temporarily,  by  issuing  a  report  or  rumor  of  crop 
damage.  Now,  all  market  rumors  of  all  kinds  are  forbidden. 
The  three  private  crop  reporting  agencies  of  the  market 
(namely  Snow,  Goodman,  Inglis)  are  licensed  by  the  Board, 
and  submit  copies  of  their  reports  before  making  them  pub- 
lic. A  close  scrutiny  is  kept  over  all  market  reporting  by  the 
press  reporters  who"  have  the  privilege  of  the  floor,  to  see 
that  their  published  statements  conform  to  the  facts  and  do 
not  mislead  or  misguide  the  public  with  rumors,  advice,  or 
suggestions.  The  various  firms  of  the  Board  who  issue  daily 
market  letters  to  their  customers  file  copies  with  the  Board, 
in  order  that  a  watch  may  be  kept  on  the  proper  use  of 


97 

market  information.  Market  loiters  are  not  allowed  to  fore- 
cast the  market  or  advise  customers  to  buy  or  sell.  They 
are  limited  to  statements  of  market  news  which  they  have 
accepted  in  good  faith  as  true.  Certain  market  news  com- 
panies sell  a  news  service  which  comes  out  on  the  news 
tickers.  This  matter  is  also  under  a  close  censorship  by 
the  expert  of  the  Market  Report  Committee.  Once  a 
rumor  is  started  and  gets  on  the  wire,  it  is  the  duty  of  this 
expert  to  run  it  down  to  its  ultimate  source  and  to  punish 
the  offender — if  he  be  a  member  of  the  Board  and  hence 
under  its  jurisdiction. 

(10)  Terminal  Elevators. — The  relation  of  the  Board  of 
Trade  to  the  terminal  elevators  of  Chicago  forms  one  of  the 
most  important  features  of  the  cash  and  futures  grain  mar- 
ket of  this  city,  involving  as  it  does  the  vital  questions  of 
storage  and  of  warehouse  receipts. 

The  past  history  of  the  grain  trade,  like  the  past  history 
of  any  other  institution  (not  even  excepting  the  Church  and 
the  State)  contains  many  dark  pages,  due  to  the  cupidity  or 
the  weakness  of  some  of  the  men  engaged  in  it.  The  terminal 
storage  record  of  this  market,  is  perhaps  no  better  or  no 
worse  than  the  record  of  any  other  commercial  institutions 
of  the  same  period — including  railroads,  banks,  industrial 
corporations,  and  so  on.  To  begin  with,  the  railroads  of  the 
early  day  built  their  own  passenger  depots  here,  their  own 
freight  depots,  and  their  own  grain  elevators.  At  the  pres- 
ent time  it  is  not  permitted  for  a  railroad  to  build  and  also 
operate  a  grain  elevator  in  connection  with  its  business.  The 
second  step  in  terminal  storage  was  the  building  of  private 
terminal  elevators  by  a  few  larger  firms,  and  the  leasing  from 
the  railroads  of  their  warehouses  by  certain  large  grain 
dealers.  In  some  cases  the  elevators  were  ostensiblv  "sold" 


)         SPECULATION   AND   THE    CHICAGO   BOARD    OF   TRADE 

to  the  grain  dealers,  but  on  such  terms  as  to  be  in  substance, 
a  gift.  The  railroads  in  turning  over  these  houses  to  grain 
dealers  expected  in  return  a  certain  amount  of  business  to 
result;  that  is,  the  firm  would  be  expected  to  receive  into  the 
elevator  a  certain  amount  of  grain,  hauled  over  the  road. 
And  as  the  so-called  "granger  roads"  began  to  reach  out 
farther  and  farther  into  the  grain  belt,  it  was  a  matter  of 
competition  which  roads  could  secure  and  keep  a  large 
amount  of  this  tonnage.  This  competition  took  the  form  of 
granting  to  one  large  Chicago  dealer  on  each  important 
granger  road  a  special  rate  over  that  road ;  in  effect,  a  monop- 
oly in  the  grain  business  on  that  road.  This  was  reflected 
back  in  the  price  paid  at  the  country  station  and  to  the  far- 
mer himself.  In  this  manner  the  Rock  Island  Railroad  was 
alloted  to  one  firm;  the  Sante  Fe  to  another;  the  Milwaukee 
to  another;  and  so  on.  Competition  in  country  buying  was 
now  dead.  At  the  terminal  market,  namely,  on  the  Chicago 
Board  of  Trade,  the  small  dealers  were  threatened  seriously 
with  extinction.  In  short  the  grain  business  was  in  a  fair 
way  to  be  concentrated  into  a  few  powerful  hands.  Among 
the  different  forces  fighting  this  concentration  may  be 
named  the  Interstate  Commerce  Commission,  the  State  and 
federal  courts,  and  last  and  perhaps  most  important  of  all, 
the  Chicago  Board  of  Trade.  In  a  brief  narrative  like  this, 
only  a  few  typical  incidents  and  episodes  may  be  given  in 
the  long,  bitter,  and  dramatic  contest  between  the  Board  of 
Trade  and  the  Terminal  Elevators.  The  friction  and  the 
clashing  of  interests  have  continued  almost  to  the  present 
day.  It  began  with  a  struggle  against  the  famous  Elevator 
Pool  and  Elevator  Monopoly,  and  continued  till  satisfactory 
working  arrangements  were  made  in  very  recent  years. 
As  foreshadowing  the  clashing  of  interests  between  the 


THE  CHICAGO  BOARD  OF  TRADE  99 

Board  of  Trade  and  the  Terminal  Elevators,  the  following 
may  be  cited: 

"So  many  charges  were  made  of  laxity  in  inspection,  and 
of  fraud  on  the  part  of  the  elevator  proprietors  and  wheat 
mixers,  that  on  the  25th  of  October,  1861,  the  Board  of 
Trade  appointed  a  committee  to  investigate  the  matter  and 
report  the  facts  to  the  Board,  together  with  their  recom- 
mendations as  to  a  remedy  for  such  evils  as  they  should 
find.  This  committee,  of  which  Mr.  Joseph  Wright  was 
chairman,  made  a  report  to  the  annual  meeting  of  April  7, 
1862,  recommending  that  all  grain  bagged  on  the  track 
should  be  refused  admission  to  the  regular  warehouses,  and 
that  the  names  of  any  members  guilty  of  frauds  should  be 
posted  on  the  bulletin  board  together  with  a  statement  of  the 
facts  of  the  case.  The  annual  meeting  adopted  the  report; 
the  Board  of  Directors  on  the  25th  of  April  passed  the  neces- 
sary resolutions  to  enforce  this  action  and  the  warehousemen 
pledged  themselves  to  observe  the  new  rules.  "* 

The  first  Illinois  law  regulating — or  attempting  to  regu- 
late warehouses — was  enacted  in  1867. 

The  Board  of  Trade  sent  a  committee  to  the  state  capitol 
to  lobby  for  this  bill.  Some  of  the  chief  provisions  of  this 
act  are  these: 

a.  Railroads  to  deliver  grain  to  any  warehouse  to  which 
consigned. 

b.  Two  classes  of  grain  warehouses — Public  and  Private. 
Private  warehouses  must  keep  in  special  bins  the  grain  of 
separate  owners.    Public  warehouses  may  mix  grain  of  like 
grade. 

c.  Inspection   before   going  into   Public   house.     Public 
house    may    mix,    dry,    clean    or    condition    grain    upon 

*  Taylor's  History  of  the  Board  of  Trade,  p.  292. 


100      Sl'KCTLATION   AND   THE    CHICAGO    BOARD   OF   TRADE 

owner's  request,  but  treated  grain  not  to  be  mixed  with  higher 
grade. 

d.  Provision    made    for    warehouse    receipts    for    special 
binned  grain. 

e.  "§  9.    All  persons  keeping  public  warehouses  in  the  city 
of  Chicago  shall  file  with  the  Board  of  Trade  of  said  city,  on 
Tuesday  of  each  week,  a  statement  showing  the  amount  of 
each  kind  of  grain  in  store  in  such  warehouses  up  to  the 
Saturday  night  preceding  such  statements." 

The  courts  soon  held  that  railroads  must  deliver  grain  to 
any  designated  warehouse  on  their  own  line,  but  were  not 
obliged  to  enter  into  any  arrangement  to  deliver  over  the 
tracks  of  another  road. 

.  The  terminal  elevators  in  1870  announced  a  new  schedule 
of  storage  charges,  thus  opening  up  anew  a  matter  the  Board 
had  thought  settled.  The  rates  applied  to  grain  in  good  con- 
dition, and  to  grain  out  of  condition  higher  rates  were  ap- 
plied. Discussions  were  held  on  the  Board  at  this  time  con- 
cerning the  old  evils. of  forged  warehouse  receipts,  and  of  the 
advisability  of  establishing  a  central  agency  for  the  registra- 
tion of  warehouse  receipts.  However,  the  Elevators  refused 
to  cooperate  with  the  Board  in  this  reform. 

The  city  papers  of  Chicago  at  this  time  joined  in  the  con- 
troversy, the  Times  siding  with  the  Elevators,  the  Tribune 
with  the  Board  of  Trade. 

The  Chicago  Tribune,  representing  the  views  of  the  Board 
of  Trade,  said,  in  reply  to  the  Chicago  Times: 

"If  it  be  true,  as  the  Times  implies,  that  no  regulations 
can  be  admitted  which  will  interfere  with  the  right  of  the 
elevator  proprietors  to  issue  receipts  for  grain  not  in  their 
possession,  to  charge  storage  on  grain  which  never  goes  into 
their  bins,  to  trade  ad  libitum  on  the  property  of  other  people 


THE    CHICAGO    HOARD'  v  )  F-  T-TL-V  I  v  K 


which  has  been  confided  to  them  for  safe  keeping,  and  for 
that  purpose  only,  if  it  be  true  that  they  must  be  permitted 
to  do  all  this,  and  without  interference  or  investigation, 
that  the  owners  of  property  in  that  case  cannot  even  have 
the  privilege  of  knowing  whether  their  property  is  in  store  or 
not  ;  if  all  this  is  necessary  to  save  the  grain  trade  of  the  cit}r 
from  collapse,  then  we  say  the  sooner  a  collapse  comes  the 
better.  " 

It  was  at  this  juncture  that  the  Illinois  Constitution  of 
1870  was  being  formed.  The  Constitutional  Convention 
was  then  in  session.  A  petition  was  circulated  by  the  Board 
of  Trade  asking  the  Constitutional  Convention  to  take  ac- 
tion for  the  protection  of  the  public  against  elevator  frauds, 
combinations  and  over-issue  of  warehouse  receipts. 

On  May  13,  1870,  the  new  Constitution  was  adopted  by 
the  Convention,  and  was  ready  for  ratification  by  the  voters. 
The  Board  of  Trade  adopted  a  resolution  urging  all  members 
to  work  and  vote  for  the  new  Constitution.  The  Constitu- 
tion was  ratified. 

Article  XIII  of  the  new  Constitution  is  one  of  fundamental 
importance  and  reads  as  follows: 

"  WAREHOUSES 

"Section  1.  All  elevators  or  storehouses  where  grain  or 
other  property  is  stored  for  a  compensation,  whether  the 
property  stored  be  kept  separate  or  not,  are  declared  to  be 
public  warehouses. 

"Section  2.  The  owner,  lessee  or  manager  of  each  and 
every  public  warehouse  situated  in  any  town  or  city  of  not 
less  than  100,000  inhabitants,  shall  make  weekly  state- 
ments, under  oath,  before  some  officer  to  be  designated  by 


102  *SFECUL'A'TIe)N  AX  I")  THE  CHICAGO  BOARD  OF  TRADE 

the  law,  and  keep  the  same  posted  in  some  conspicuous  place 
in  the  office  of  such  warehouse,  arid  shall  also  file  a  copy  for 
public  examination  in  such  place  as  shall  be  designated  by 
law,  which  statement  shall  correctly  set  forth  the  amount 
and  grade  of  each  and  every  kind  of  grain  in  such  warehouse, 
together  with  such  other  propety  as  may  be  stored  therein, 
and  what  warehouse  receipts  have  been  issued  and  are,  at 
the  time  of  making  such  statement,  outstanding  therefor, 
and  shall,  on  the  copy  posted  in  the  warehouse,  note  daily 
such  changes  as  may  be  made  in  the  quantity  and  grade  of 
grain  in  such  warehouse;  and  the  different  grades  of  grain 
shipped  in  separate  lots  shall  not  be  mixed  with  inferior  or 
superior  grades,  without  the  consent  of  the  owner  or  con- 
signee thereof. 

"Section  3.  The  owner  of  property  stored  in  any  ware- 
house or  holder  of  a  receipt  for  the  same  shall  always  be 
at  liberty  to  examine  such  property  stored  and  all  the 
books  and  records  of  the  warehouse  in  regard  to  such 
property. 

"Section  4.  All  railroad  companies  and  other  common 
carriers  on  railroads  shall  weigh  or  measure  grain  at  points 
where  it  is  shipped,  and  receipt  for  the  full  amount,  and 
shall  be  responsible  for  the  delivery  of  such  amount  to  the 
owner  or  consignee  thereof,  at  the  place  of  destination. 

"Section  5.  All  railroad  companies  receiving  and  trans- 
porting grain  in  bulk  or  otherwise  shall  deliver  the  same  to 
any  consignee  thereof,  or  to  any  elevator  or  public  warehouse 
to  which  it  may  be  consigned,  provided  such  consignee  or  the 
elevator  or  public  warehouse  can  be  reached  by  any  track 
owned,  leased,  or  used,  or  which  can  be  used  by  such  rail- 
road companies;  and  all  railroad  companies  shall  permit 
connections  to  be  made  with  their  track  so  that  any  such 


THE  CHICAGO  BOARD  OF  TRADE  103 

consignee  and  any  public  warehouse,  coal  bank  or  coal  yard 
may  be  reached  by  the  cars  of  said  railroad. 

"Section  6.  It  shall  be  the  duty  of  the  General  Assembly 
to  pass  all  necessary  laws  to  prevent  the  issue  of  false  and 
fraudulent  warehouse  receipts,  and  to  give  full  effect  to  this 
Article  of  the  Constitution,  which  shall  be  liberally  construed 
so  as  to  protect  producers  and  shippers.  And  the  enumera- 
tion of  the  remedies  herein  named  shall  not  be  construed  to 
deny  to  the  General  Assembly  the  power  to  prescribe  by 
law  such  other  and  further  remedies  as  may  be  found  ex- 
pedient, or  to  deprive  any  person  of  existing  common  law 
remedies. 

"  Section  7.  The  General  Assembly  shall  pass  laws  for  the 
inspection  of  grain,  for  the  protection  of  producers,  shippers 
and  receivers  of  grain  and  produce. " 

This  historic  article  was  effectuated  by  the  Illinois  Rail- 
road and  Warehouse  Commission  Act  of  April  13,  1871,  the 
significant  principle  of  which  was  to  place  terminal  ware- 
houses under  public  regulation.  This  principle  was  tested 
out  in  the  courts,  the  Supreme  Court  of  the  United  States 
(in  the  case  of  Munn  v.  Illinois)  holding  the  principle  to  be 
legal. 

Under  this  act  the  inspection  of  grain  was  taken  over  by 
the  State.  Speaking  on  this  subject,  the  Board  of  Railroad 
and  Warehouse  Commissioners  said  in  their  first  annual 
report : 

"The  inspection  of  grain  and  registration  of  warehouse  re- 
ceipts having  been  previously  in  charge  of  the  Board  of 
Trade  of  the  City  of  Chicago,  and  having  been  carried  on 
under  the  control  of  said  Board,  the  Commissioners  have,  in 
the  main,  adopted  the  rules  which  experience  had  taught 
that  Board  to  be  practical  and  advisable. " 


104   SPECULATION  AND  THE  CHICAGO  BOARD  OF  THADE 

This  law  fixed  storage  rates  for  grain  in  public  ware- 
houses. 

The  manner  of  issuing,  registering  and  cancelling  ware- 
house receipts  was  covered  in  detail,  the  whole  matter  being- 
placed  under  the  State  Commission. 

That  the  elevators  were  not  in  a  mood  to  accept  state 
regulation  at  that  time  is  seen  by  the  first  report  of  the 
Board  of  Railroad  and  Warehouse  Commissioners,  wherein 
this  language  occurs: 

"At  an  early  period  official  information  was  received  by 
the  Board  that  none  of  the  warehouses  of  class  'A'  (i.  e., 
public  warehouses  in  cities  of  over  100,000  population), 
which  are  required  by  the  act  regulating  public  warehouses 
to  take  out  licenses,  had  complied  with  the  law  in  that  re- 
spect. As  no  possible  excuse  could  exist  for  such  an  open 
violation  of  a  plain  law,  the  Board  at  once  instructed  the 
State's  attorney  of  Cook  County,  wherein  all  warehouses  of 
class  'A'  are  situated,  to  institute  proceedings  against  said 
delinquent  owner  or  manager  of  warehouses." 

The  railroads  cooperated  with  the  warehousemen  in  ob- 
structing the  law,  discriminating  against  elevators  not  in  the 
pool.  It  is  stated  that  in  1872  five  firms  consisting  of  eight 
men,  owned  all  the  public  warehouses  in  Chicago,  and  each 
man  owned  stock  in  all  the  warehouses.  A  bankruptcy  case, 
at  this  time  (Munn  v.  Scott  Elevator  Company),  brought 
to  the  public  attention  a  concrete  case  of  storage  tickets 
outstanding  for  stored  grain,  but  no  grain  in  store.  Writing 
up  this  scandal  in  the  grain  trade,  the  Chicago  Tribune  of 
November  20,  1872,  used  these  headlines:  "Ira  Y.  Munn  on 
Stand  Lays  Jfcuv  Elevator  Combination — Profits  Divided — 
Agreement  in  1866 — Included  Northwestern  Elevators, 
West  Side  Elevators,  Galena  and  Wheeler  &  Munger — A 


THE  CHICAGO  BOARD  OF  TRADE  105 

( Vneral  Pool — History  of  Contracts  with  Northwestern 
Railway  beginning  in  1862  and  renewed  in  1866. " 

Public  warehousemen,  at  first  custodians  only  of  grain, 
began  the  practice  of  dealing  in  grain  sometime  about  the 
year  1885.  In  other  words,  they  became  competitors  of 
those  whose  grain  was  stored  in  their  own  house.  It  is 
readily  apparent  that  such  a  situation  contains  potential- 
ities of  great  evil. 

" Regular"  elevators  were  and  are  those  whose  warehouse 
receipts  are  deliverable  on  contracts.  This  necessitates  a 
certain  nexus  or  working  arrangement  between  the  regular 
elevators  and  the  Board  of  Trade. 

In  the  year  1894  a  petition  for  a  Referendum  vote  of  the 
membership  of  the  Board  of  Trade  secured  the  passage  (698 
to  499)  of  an  amendment  to  the  Rules,  to -the  effect  that 
Elevators,  to  be  regular,  must  agree  not  to  engage  in  the 
buying,  selling,  receiving,  shipping,  cleaning  or  mixing  of 
grain.  The  Elevators  resisted  the  rule  and  threatened  to 
quit  the  Board  of  Trade.  They  forced  a  compromise,  largely 
in  their  own  interests.  Even  this  compromise  was  resisted 
by  a  few  representatives  of  the  Elevators,  who  were  in  turn 
suspended  by  the  Board  of  Trade. 

President  Baker  of  the  Board  of  Trade,  a  strong  advocate 
of  reform,  upon  assuming  office  for  his  third  term  in  1895, 
paid  much  attention  to  the  elevator  question  in  his  inaugural 
address.  He  said,  in  part: 

"The  alliance  between  the  elevators  and  the  railroads  has 
resulted  in  reaching  out  for  millions  of  bushels  of  grain  not 
naturally  tributary  to  us,  and  when  gathered  here  prevent- 
ing it,  by  such  tricks  of  trade  as  you  are  familiar  with,  from 
ever  getting  away  again  as  long  as  storage  can  be  collected 
on  it.  This  policy  has  resulted  in  such  congestion  of  grain 


106   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

here  as  to  depress  prices  to  the  lowest  point  in  history.  .  .  . 
A  system  that  permits  the  proprietors  of  public  elevators, 
directly  or  indirectly,  to  deal  in  the  property  of  which  they 
are  the  custodians  is  essentially  immoral.  The  temptation  to 
reserve  for  themselves  the  best  of  a  grade  is  one  to  which  the 
law  never  contemplated  that  they  should  be  subjected.  The 
elevator  is  the  same  blight  on  legitimate  trade  that  anti- 
option  legislation  would  have  been  if  enacted.  Special  rates 
are  made  to  favored  individuals  who  have  the  further  ad- 
vantage of  elevator  control,  so  that  rates  charged  to  the 
public  are  rebated  to  themselves,  enabling  them  to  outbid  or 
undersell  all  competitors.  This  charge  of  3/4  cent  for  first 
storage  is  retained  only  as  a  protection  to  elevator  managers 
against  competition  of  legitimate  dealers  in  grain.  It  is  a 
charge  which  you  cannot  avoid  but  which  is  ignored  by  them 
in  their  own  transactions,  thus  forcing  everyone  to  sell  to  or 
buy  from  them." 

It  is  significant  to  note  that  President  Baker  was  in  1897 
elected  to  his  fifth  term  as  president,  on  his  reform  record — 
a  period  of  service  never  equalled  before  or  since  in  the 
history  of  the  Board  of  Trade. 

A  landmark  in  the  long  fight  with  terminal  elevators  is 
Judge  Tuley's  decision  in  a  warehouse  case  to  the  effect  that 
a  public  warehouse  owner  is  a  custodian  of  grain  and  cannot 
deal  in  grain  stored  in  such  warehouse. 

The  findings  of  Judge  Tuley  in  the  case,  Central  Elevator 
Company  v.  The  People  of  the  State  of  Illinois  are  as  fol- 
lows: * 

".  .  .  The  court  finds  that  defendant  ...  is  a  public 
warehouseman  of  Class  A  in  Chicago,  and  at  such  times 

*  Findings  upheld  by  Illinois  Supreme  Court.  174  III.  Reports,  p. 
203. 


THE  CHICAGO  BOARD  OF  TRADE  107 

was,  and  now  is  engaged  ...  in  the  business  of  a  pub- 
lic warehouseman  and  in  the  operation  of  two  public 
warehouses  of  Class  A,  known  as  Alton  Elevator  and  Alton 
Elevator  B,  having  a  total  capacity  of  1,850,000.  That 
grain  has  been  heretofore  and  at  and  since  the  commence- 
ment of  this  suit,  and  now  is,  bought  by  said  Central  Eleva- 
tor Company,  and  when  so  bought  has  been  and  is  now 
stored  in  said  warehouses  of  said  Central  Elevator  Company, 
and  has  heretofore  been,  and  now  is  mixed  with  grain  of 
others  therein  stored;  that  the  Railroad  and  Warehouse 
Commissioners  of  Illinois  many  years  ago  established  the 
different  grades  of  the  different  kinds  of  grain;  .  .  .  the 
said  grades  are  still  in  force  in  Chicago,  and  the  grades  so 
established  for  the  different  qualities  of  grain  are  not  such 
that,  under  such  inspection  and  grading  thereof,  all  the  grain 
of  each  grade  is  of  exactly  the  same  quality,  nor  is  it  practi- 
cable to  establish  grades  of  grain  which  will  comprise  only 
grades  of  grain  of  exactly  the  same  quality,  but  it  always 
has  resulted  and  must  always  result  that  in  the  inspection  of 
grain  coming  to  the  Chicago  market  carloads  of  grain  of 
different  qualities  have  been  and  must  of  necessity  continue 
to  be  graded  into  the  same  grade,  the  difference  in  the  mar- 
ket price  at  the  same  time  of  different  qualities  of  the  same 
grade  of  grain  varying  from  2  cents  per  bushel  in  the  upper 
grades  to  15  cents  per  bushel  in  the  lower  grades;  that  the 
great  bulk  of  the  grain  brought  to  Chicago  is  brought  by 
rail,  and  in  carloads,  and  is  inspected  by  the  state  inspectors 
while  on  the  track  and  before  being  transferred  into  the 
public  warehouses  of  said  defendant;  that  there  did  not  exist 
in  or  prior  to  1871,  in  Chicago  or  in  Illinois,  any  well-known, 
general,  or  uniform  custom  or  usage  among  grain  warehouse- 
men to  deal  in  or  buy  or  sell  grain,  or  to  store  grain  owned  by 


108   SPECULATION  AND  THE  CHICAGO  BOAHD  OF  TRADE 

them  in  their  own  warehouses,  or  to  mix  grain  bought  by 
them  with  that  of  their  customers,  and  the  proprietors  of 
public  warehouses  of  Class  A  in  Chicago  did  not,  to  any 
general  extent,  begin  to  buy  and  sell  grain  and  store  or  mix 
their  said  grain  in  these  said  warehouses  with  the  grain  of 
their  customers  there  stored  until  about  the  year  1885;  that 
since  that  year  the  practice  has  continued  to  grow,  until  for 
the  last  two  or  three  years  the  defendant  Central  Elevator 
Company  and  the  proprietors  of  Class  A  warehouses  in 
Chicago  are  the  principal  buyers  and  sellers  of  grain  in  the 
Chicago  market  and  on  the  Chicago  Board  of  Trade,  and, 
by  reason  of  the  advantages  they  possess  and  certain  changes 
in  the  grain  trade,  they  have  practically  driven  out  of  busi- 
ness the  class  of  persons  who  were  before  that  time  engaged 
in  buying  and  shipping  grain  in  the  Chicago  market,  and 
said  Central  Elevator  Company  and  said  warehouse  proprie- 
tors are  fast  monopolizing  the  business  of  dealing  in  grain  in 
the  Chicago  market;  that  upon  some  of  the  lines  or  systems 
of  railroad  entering  Chicago  the  proprietors  of  the  public 
grain  warehouses  along  the  lines  of  said  railroad  are  practi- 
cally the  only  buyers  of  grain  received  in  Chicago  over  said 
lines  or  systems  and  at  the  time  of  the  filing  of  said  informa- 
tion said  Central  Elevator  Company  and  said  warehousemen 
owned  at  least  three-quarters  of  all  the  grain  stored  in  the 
public  warehouses  in  Chicago ;  that  there  now  are  in  Chicago 
twenty-nine  warehouses  of  Class  A,  with  an  aggregate 
capacity  of  41,000,000  bushels,  and  the  amount  of  grain  re- 
ceived into  them  was  73,000,000  bushels  in  1895  and  61,000-, 
000  bushels  in  1896,  and  nearly  all  of  said  proprietors  of  said 
warehouses  in  Chicago  also  deal  in  futures — that  is,  in  the 
class  of  contracts  for  the  future  delivery  of  grain  which  are 
dealt  in  on  the  Chicago  Board  of  Trade;  that  said  defendant 


THE  CHICAGO  BOARD  OF  TRADE  109 

and  other  proprietors  of  Chicago  warehouses  of  Class  A 
exact  established  rates  of  storage  from  others,  and,  while  so 
doing,  said  Central  Elevator  Company  and  the  proprietors 
of  the  other  warehouses  of  Class  A  often  overbid  other 
buyers  of  grain  in  the  Chicago  market  and  elsewhere,  and 
are  enabled  to  do  this  because  said  defendant  and  other 
proprietors  of  warehouses  of  Class  A  in  Chicago  yield  a  por- 
tion of  the  established  storage  rates  charged  to  others  upon 
like  grade ;  that  the  buying  of  grain  by  said  Central  Elevator 
Company  and  said  proprietors  of  Chicago  Warehouses  of 
Class  A  tends  to  crush  competition  in  the  Chicago  grain 
market  and  to  foster  in  said  Central  Elevator  Company,  and 
in  the  proprietors  of  Class  A  warehouses  in  Chicago,  a  mo- 
nopoly in  the  grain  trade  which  is  and  will  be  hurtful  to  the 
people  of  Illinois,  and  it  is  unlawful  for  a  proprietor  of  a  pub- 
lic warehouse  of  Class  A  to  store  his  own  grain  in  said  ware- 
house. It  is  therefore  ordered,  adjudged,  and  decreed  that 
from  and  after  five  months  from  the  date  of  the  entry  of  this 
decree  said  defendant  and  his  agents,  servants,  employees, 
and  officers  be  perpetually  enjoined  from  storing  in  his  pub- 
lic warehouses  any  grain  directly  or  indirectly  owned  by  or 
belonging  to  said  Central  Elevator  Company,  or  in  which 
said  Central  Elevator  Company  may  have  any  interest 
other  than  as  warehouseman"  (dated  January  9,  1897). 

One  militant  member  of  the  Board  whose  active  zeal  for 
reform  won  him  the  name  of  "the  gadfly  of  the  Board"  suc- 
ceeded in  bringing  to  the  attention  of  the  Interstate  Com- 
merce Commission  (and  thus  of  the  world)  in  hearings  held 
in  Chicago  in  1906,  the  relationship  of  common  carriers  to 
country  elevators  and  terminal  elevators.  The  Board  is 
fortunate  to  have,  in  crises  like  this,  such  true  conservators 
of  its  permanent  welfare  and  who  can  see  beyond  the 


110      SPECULAT.ON    AND    THE    CHICAGO    BOARD    OF    TRADE 

moment,  even  though  it  entail  sacrifices  upon  them- 
selves. 

Following  these  hearings,  and  they  reveal  some  unsavory 
matters,  came  a  year  of  bitterness  and  of  friction  between 
the  elevator  interests  and  the  other  interests  on  the  Board. 
Many  members  quit  the  Board.  The  value  of  a  member- 
ship sunk  to  a  low  level.  Terminal  elevators  had  their  "line 
elevators"  in  the  country.  They  were  buying  "to  arrive" 
grain.  They  were  in  a  fair  way  to  crush  out  the  cash  grain 
dealers  (commission  merchants)  and  to  make  this  a  "rich 
man's  market." 

At  this  juncture  a  "harmony  candidate"  was  unanimously 
elected  president  of  the  Board  of  Trade,  in  order  to  effect  a 
satisfactory  working  relationship  between  the  Board  and  the 
terminal  elevators.  The  man  selected,  Mr.  Hiram  Sager, 
was  head  of  one  of  the  oldest  cash  grain  houses  on  the  mar- 
ket, and  was  a  man  "without  fear  and  without  reproach." 
A  written  memorandum  of  understanding  was  prepared  and 
was  signed  by  the  elevator  interests,  the  agreement  running 
from  year  to  year  indefinitely  unless  formally  cancelled. 
Under  the  terms  of  this  understanding  the  Board  feels 
secure  from  year  to  year  in  having  enough  "regular"  storage 
to  meet  the  needs  of  the  dealers  in  cash  grain.  The  eleva- 
tors, in  turn,  know  definitely  what  their  working  conditions 
are. 

In  only  one  important  respect  has  this  agreement  been 
violated  in  spirit  by  the  elevator  interests — although  the 
law  of  the  State  forbids  the  public  warehouseman  to  store  his 
own  grain  in  his  own  public  warehouse  and  issue  warehouse 
receipts  against  it;  this  feature  of  the  law  was  set  at  naught 
by  the  elevator  companies  for  several  years.  This  they  did 
by  a  practice  which  came  to  be  known  as  "forcing  grain  into 


THE  CHICAGO  BOARD  OF  TRADE  111 

storage  in  order  to  earn  the  carrying  charges."  This  proc- 
ess was  very  simple.  Cash  grain  would  be  bought  by  the 
elevator  company;  it  would  be  sold  for  cash  to  brokers  to  go 
into  store  in  the  company's  own  public  warehouses,  at  a 
price  1/8  cent  lower  than  the  ruling  price  for  the  future;  at 
the  same  time  the  elevator  company  would  buy  futures 
from  these  brokers,  at  a  price  1/8  cent  higher  than  the  cash 
price  plus  the  carrying  charges.  Thus  the  letter  of  the  law 
was  obeyed,  but  the  spirit  of  the  law  was  broken.  The 
courts  have  enjoined  this  practice  and  apparently  it  has 
been  discontinued. 

The  ''mixing  "  question  was  the  cause  of  much  litigation, 
the  Board  of  Trade  opposing,  and  the  terminal  elevators 
upholding  this  practice.  The  Terminal  Elevator  may  be 
compared  with  the  milkman  delivering  milk  to  the  city  re- 
quiring the  milk  to  grade  3.5  per  cent.  If  his  milk  is  4  per 
cent  he  may  safely  and  profitably  dilute  it  down  to  the  3.5 
limit.*  So  the  elevator  called  on  to  deliver  on  contracts 
Number  2  wheat  would — safely  and  profitably — "skin  the 
grade"  down  to  the  minimum  Number  2  limit.  In  practice 
a  high  quality  Number  2  wheat  could  be  mixed  with  a 
Number  3  and  the  whole  mixture  honestly  grade  Number  2. 
The  outcome  of  all  the  litigation  was  that  the  elevators 
could  not  mix  their  own  grain  with  the  grain  of  customers; 
" regular"  public  elevators  cannot  be  used  for  this  purpose. 
Under  one  condition  can  the  owner  of  a  public  elevator  store 
his  own  grain  in  it,  namely,  that  he  special  bin  it,  and  then 
it  is  not  deliverable  on  contracts  in  exchange  for  warehouse 
receipts.  Of  course,  the  terminal  elevator,  like  the  farmer 
or  any  owner  of  grain,  may  mix  his  own  grain  in  any  way  he 

*  For  a  discussion  of  mixing  water  with  creamery  butter,  see  Ap- 
pendix 18. 


112       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

may  see  fit:  he  may  clean  it,  dry  it,  condition  it,  and  so  on. 
But  these  operations  cannot  be  carried  on  in  the  public 
warehouses.  They  must  be  done — and  are  done — in  private 
warehouses,  and  regular  warehouse  receipts  are  not  issued. 
The  term  " hospital  elevator"  is  the  term  commonly  used  in 
Canada  for  houses  conditioning  off-grade  grain.  The  far- 
mers grain  company  (United  Grain  Growers,  of  Winnipeg) 
succesfully  operates  a  hospital  elevator  and  finds  it  an  essen- 
tial part  of  the  terminal  market  equipment,  particularly 
when  rain,  frost,  or  snow  puts  much  grain  out  of  condition. 
The  term  "hospital  elevator"  is  also  used  in  Duluth  and 
Minneapolis,  but  is  not  in  use  in  Chicago.  Dealers  in  Chi- 
cago who  specialize  in  out-of-condition  grain,  such  as  wet 
corn,  heated  wheat,  etc.,  are  said  to  operate  "salvage 
houses."  Hospital  elevators,  whatever  they  may  be  called, 
make  a  market  for  considerable  low-grade  grain  which  were 
otherwise  unfit  for  human  consumption,  and  the  price  they 
pay  is  reflected  back  to  the  farmer.  So  the  mixing  evil,  so 
far  as  it  was  an  evil,  consisted  in  taking  advantage  of  a 
customer's  good  quality  of  grain  without  letting  him  share 
that  advantage.  Under  the  present  system  the  customer 
gets  the  benefits  of  any  superiority  of  quality  his  grain  may 
possess. 

The  railroad-terminal-elevator  monopoly  was  the  biggest 
monopoly  the  Board  of  Trade  had  to  face.  At  the  thick  of 
the  fight,  it  was  said  that  the  monopoly  was  winning,  and 
that  one  hundred  cash  grain  dealers  had  already  quit  the 
Chicago  market.  But  after  the  "harmony  agreement"  was 
finally  reached,  ten  years  ago,  the  cash  grain  men  felt  their 
existence  secure,  for  the  first  time.  The  men  who  handle 
cash  grain — who  receive  consigned  grain  and  sell  it  on  com- 
mission— are  the  one  protection  to  the  country  grain  shipper. 


TIFK    CUTCACO     BOARD    OK    TRADE  118 

Their  interests  are  identical.  It  is  fortunate,  therefore,  for 
I  he  country  shipper  (and  the  fanner  back  of  him)  that  in  the 
fifty-year  anti-monopoly  fight  on  the  Chicago  market,  the 
Board  of  Trade  won,  and  that  now,  when  an  issue  on  this 
subject  arises,  and  the  votes  of  the  membership  determine 
the  policy,  the  numerical  voting  strength  of  the  elevators  is 
as  small  as  it  is.  This  justifies  some  confidence  in  the  future 
continuation  of  this  market  as  an  open  competitive  market. 

(11)  Arbitration  of  Business  Disputes. — Disputes  aris- 
ing out  of  dealings  on  the  Board  of  Trade  may  be  of  two 
kinds:  first,  a  mere  interpretation  of  the  rules;  these  are 
settled  by  the  committee  on  interpretation  of  rules:  second, 
disputes  involving  the  payment  of  money.  Disputes  of  this 
kind  go  before  an  arbitration  committee  for  adjustment 
without  employing  lawyers  or  courts,  the  feeling  being  that 
in  such  highly  technical  business  matters  justice  is  thereby 
swifter,  cheapen,  and  surer.  An  appeal  lies  to  the  Committee 
on  Appeals,  but  no  higher.  Non-members  may  use  the 
services  of  the  Arbitration  Committee  and  the  Committee 
on  Appeals,  provided  they  agree  in  advance  to  abide  by  the 
decision. 

A  five-year  study  of  all  cases  arbitrated  (1913-1917)  shows 
that  82  cases  were  handled,  involving  a  total  of  $35,561.17. 
Of  these  cases,  12  involved  non-members.  The  non-mem- 
bers won  in  seven  out  of  twelve  cases.  The  bulk  of  these  82 
cases  were  disputes  arising  out  of  future  trades,  and  seem  to 
have  arisen  out  of  errors  between  firms  in  checking  trades. 

While  the  arbitration  work  of  the  Board  of  Trade  is  not 
spectacular  and  hence  is  not  in  the  limelight  of  publicity,  yet 
it  represents  one  of  the  most  successful  market  functions 
performed  by  the  Board  of  Trade. 

Summary. — We  have  now  seen  a  picture  of  the  Board  of 


114      SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

Trade,  and  a  cross  section  of  one  day's  trading,  together  with 
the  historical  background  of  all  the  more  important  activi- 
ties of  the  Board's  membership.  Postponing  to  the  next 
chapter  the  consideration  of  the  problem  of  speculation,  the 
conclusions  reached  thus  far  in  our  study  may  be  summar- 
ized as  follows:  The  Board  of  Trade  is  an  efficient  piece  of 
market  machinery;  it  is  operated  at  a  low  margin  of  cost;  it 
is  an  open  and  competitive  market;  it  is  operated  under 
democratic  rules  of  self-government  controlled  by  a  Board 
of  Directors  in  the  public  interest. 


THE  CHICAGO  BOARD  OF  TRADE  AND  THE 
PROBLEM  OF  SPECULATION 

The  Chicago  Board  of  Trade  is  best  known  throughout  the 
United  States  and  the  whole  world  as  a  great  speculative 
market.  The  preceding  pages  have  made  clear,  it  is  hoped, 
two  facts,  namely,  (1)  that  Chicago  is  the  world's  greatest 
cash  grain  market,  and  (2)  the  cash  grain  business  and  the 
speculative  trading  are  closely  interwoven,  the  speculators 
performing  certain  important  market  functions. 

In  the  field  of  speculation,  however,  the  Chicago  market 
is  larger  than  all  the  other  speculative  grain  markets  of  the 
world  combined.  While  many  Minneapolis  speculators 
speculate  on  the  future  market  of  the  Minneapolis  Chamber 
of  Commerce,  most  of  their  speculation  is  done  on  the  Chi- 
cago Board  of  Trade.  The  same  is  true  of  members  of  the 
Board  of  Trade  of  Duluth,  of  the  Merchanst'  Exchange  of 
St.  Louis,  of  the  Board  of  Trade  of  Kansas  City,  and  of  the 
Grain  Exchange  of  Winnipeg.  So  also  there  are  operating 
on  the  Chicago  Board  of  Trade  speculators  in  Buenos  Aires, 
in  Liverpool,  in  Vienna,  and  in  other  great  markets.  The 
eight  or  ten  billion  bushels  of  the  world's  speculative  grain 
crops  (wheat,  corn,  oats)  are  all  traded  in  on  the  Chicago 
Board  of  Trade,  the  total  volume  of  this  trading  being 
probably  two  times  the  world  crop  when  future  trading  in 
wheat  is  in  full  operation.  The  vast  volume  of  future  trad- 
ing on  this  market,  and  the  great  newspaper  prominence 

115 


116       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

given  to  the  more  dramatic  (but  less  important)  features 
of  it  have  caused  a  great  many  fallacies  on  this  subject  to 
take  root  and  propagate  themselves.  Many  of  these  fallacies 
are  easily  disposed  of,  and  will  be  so  treated  in  the  following 
discussion.  However,  at  the  outset,  it  is  best  to  pause  long 
enough  to  agree  on  what  speculation  is,  and  what  it  is  not. 

(a)  Definitions. — One  of  the  most  widely  accepted  defini- 
tions of  speculation  is  the  following:  " Speculation  is  the  fore- 
casting of  changes  in  value,  and  buying  or  selling  in  order  to 
take  advantage  of  them."  *  It  is  a  stubborn  economic  fact 
that  values  do  change  from  time  to  time.  Anything  that 
affects  the  consumer's  wants,  fancies,  whims,  caprices,  taste, 
prejudice,  passions,  knowledge  or  desire  may  affect  his  de- 
mand. Hence  demand  fluctuates.  The  supply — or  what  is 
equally  as  important — the  estimated  supply  present  and 
prospective,  changes  also  from  day  to  day.  Hence  come 
changes  in  supply  and  demand — changes  in  value.  The  defi- 
nition of  speculation  assumes  that  values  change,  that  is, 
that  the  economic  risk  cannot  be  abolished.  This  is  in  ac- 
cordance with  the  facts.  It  also  assumes  that  some  persons, 
believing  they  can  forecast  these  changes,  assume  the  risks 
involved  in  the  hope  of  deriving  advantage  therefrom. 
There  is  also  implied  in  the  definition  a  third  consideration, 
namely,  some  persons  bearing  economic  risks  prefer  to 
shift  those  risks  to  others,  rather  than  take  the  chance  of 
gaining  or  losing  by  the  approaching  change  in  value.  It  is 
a  fact  of  human  nature  worth  noting  that  some  persons  have 
the  " conservative  temperament"  and  others  have  a  more 
adventurous  temperament.  For  example,  on  the  page  of  a 
standard  financial  magazine  open  before  the  writer,  there 

*  Report  of  Governor  Hughes'  Committee  on  Speculation  in  Securi- 
ties and  Commodities.  State  of  New  York,  June  7,  1909. 


THE    CHICAGO    BOARD   OF   TRADE   AND   SPECULATION      117 

are  displayed  two  advertisements  of  securities,  one  security 
yielding  4  per  cent  and  one  yielding  8  per  cent,  or  exactly 
twice  as  much.  Such  advertisements  are  common.  They 
demonstrate  the  significant  fact  that  many  " consumers" 
prefer  a  four  per  cent  security  to  an  eight  per  cent  security, 
because  they  are  conservative,  and  do  not  want  to  assume  the 
additional  risk  which  is  associated  with  the  eight  per  cent 
security. 

The  speculator  stands  midway  between  the  conservative 
investor  and  the  gambler.  The  gambler,  by  betting  on  a 
race  or  game,  or  by  some  other  form  of  wager,  creates  his 
own  risk  voluntarily.  Then  he  stands  to  win  all  or  lose  all 
on  the  outcome.  He  is  not  performing  any  service,  since  he 
is  not  assuming  any  economic  risk  which  some  one  else  de- 
sires to  shift.  Gambling  has  long  been  outlawed  by  the 
State,  and  has  been  banned  by  society,  in  all  but  its  more 
refined  forms  such  as  card  parties  and  church  fairs.  Specu- 
lation has  its  legitimate  place,  and  is  as  common  as  invest- 
ment. 

We  may  now  consider  in  turn  some  of  the  perennial 
fallacies  on  the  subject  of  speculation,  such  as  the  following: 
" Speculation  means  manipulation  of  the  market;"  "Specu- 
lation causes  corners;"  "  Speculation  lowers  prices;"  "Specu- 
lation raises  prices;"  "Speculation  is  caused  by  future  trad- 
ing," and  so  on. 

(b)  Speculation  in  Cash  and  Futures. — Speculation  is 
speculation,  whether  a  man  buys  cash  grain  and  holds  it  for 
a  rise  in  price  or  buys  a  future  contract  for  grain  and  holds  it 
for  a  rise  in  price :  For  instance,  one  of  the  most  spectacular 
failures  in  the  grain  trade' in  the  year  1917  occurred  in  con- 
nection with  a  speculation  in  cash  grain.  The  Superior 
(Nebraska)  Corn  Products  Company  was  long  several 


118      SPECULATION    AND    THE    CHICAGO    BOARD    OF   TRADE 

thousand  bushels  of  cash  corn,  and  kept  on  buying  corn. 
This  was  during  the  World  War,  and  the  market  at  that 
time  suffered  a  big  decline,  entailing  a  large  loss  on  the  firm, 
and  wiping  out  its  assets.  Many  country  elevators  also  lost, 
having  bought  the  grain  from  farmers  at  the  high  price  and 
sold  it  in  good  faith  to  this  firm,  which  sales  n  many  cases 
were  cancelled. 

The  following  two  cases  came  to  the  writer's  attention  in 
Kansas.  A  young  farmer,  believing  he  could  forecast  the 
corn  market,  built  a  corn  crib  on  a  railway  siding  and 
bought  75,000  bushels  of  good  corn  at  18  cents.  He  held 
this  till  the  next  year  and  sold  it  for  62  cents.  It  was  a 
speculation  in  cash  corn.  A  young  lady  saved  $125  from  her 
year's  wages  as  a  school  teacher.  She  wished  to  "invest" 
this,  so,  upon  her  father's  advice  she  bought  flaxseed  which 
was  of  a  very  high  grade,  and  cost  $1.25  a  bushel.  This  flax- 
seed  was  stored  in  her  father's  bin,  storage  free,  until  seeding 
time  next  year.  Scarcity  of  good  seed  and  local  demand  put 
the  price  up  to  $2.50  a  bushel.  Thus  she  doubled  her  money 
by  her  speculation.  There  are  two  typical  cases  of  successful 
speculation.  The  question  may  be  asked,  who  was  injured 
by  this  speculation?  And  were  these  two  speculators  de- 
serving of  blame? 

It  is  clearly  a  fallacy  to  connect  speculation  with  future 
(trading.  It  is  likewise  a  fallacy  to  connect  it  with  "margin 
trading"  since  this  form  of  trading  prevails  generally  in  real 
estate,  and  is  common  elsewhere. 

The  early  travelers  in  Chicago  were  impressed  with  the 
real  estate  speculation  rather  than  with  the  grain  specula- 
tion there.  For  instance,  Harriet  Martineau  wrote  of  her 
visit  to  Chicago  in  1834  in  these  words: 

"I  never  saw  a  busier  place  than  Chicago  was  at  the  time 


THE  CHICAGO  BOARD  OF  TRADE  AND  SPECULATION   119 

of  our  arrival.  The  streets  were  crowded  with  land  specu- 
lators hurrying  from  one  sale  to  another.  ...  It  seemed 
as  if  some  prevalent  mania  infected  the  whole  people.  .  .  . 
A  poor  man  at  Chicago  had  a  preemption  right  to  some 
land  for  which  he  paid  in  the  morning  $150.00.  In  the  after- 
noon he  sold  it  to  a  friend  of  mine  for  $5000.00. " 

Or,  jumping  from  that  early  day  in  Chicago  to  the  year 
1919,  in  the  farming  area  tributary  to  Chicago  we  find  the 
same  " mania"  for  speculation  in  real  estate.  Says  G.  I. 
Christie,  Ex-Assistant  Secretary  of  Agriculture  of  the  United 
States,  to  an  audience  of  farmers: 

"I  want  to  say  the  greatest  evil  taking  place  right  now  is 
the  speculation  that  is  taking  place  in  the  farms.  In  our  own 
state  one  farm  changed  hands  six  times  in  a  few  weeks. 
What  does  it  mean?  It  means  they  are  speculating  with 
those  farms.  Right  out  in  Iowa  they  are  selling  farms,  and 
selling  them  again  next  week.  "* 

The  country  newspapers  of  Iowa,  Illinois,  Nebraska  and 
Kansas,  at  this  same  time  were  full  of  references  of  farmers 
selling  their  land  at  $200,  $300,  $400,  or  even  $500  an  acre, 
realizing  large  profits,  and  other  farmers  buying  it.  One 
farm  was  cited  near  Joliet,  Illinois,  costing  $25,000  in  1911 
and  selling  in  1919  at  $72,000.  It  is  unnecessary  to  dwell 
on  this  subject  of  land  speculation  longer  than  to  say  it  is 
our  best  illustration  of  unorganized  speculation.  It  is  not 
subject  to  any  known  rules.  It  is  not  done  in  the  full  lime- 
light of  publicity.  Organized  speculation,  such  as  is  done 
on  the  organized  exchanges,  must  be  sharply  differentiated 
from  unorganized  in  at  least  three  ways:  (1)  it  is  organized, 
that  is,  reduced  to  strict  rules  (published  and  known  to  all 
interested) ;  (2)  it  is  brought  out  into  the  open,  on  a  compet- 

*  Quoted  in  Price  Current-Grain  Reporter,  September  3,  1919,  p.  15. 


120      SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

itive  basis,  where  its  nature  is  known  and  studied;  (3)  it  is 
conducted  in  the  light  of  full  market  information. 

(c)  Speculation  and  Price  Fluctuations. — Men  speculate 
because  prices  fluctuate.  And  if  all  the  speculators  in  the 
world  were  dead,  prices  would  still  fluctuate.  Yet  how  com- 
mon is  the  belief  that  speculation  is  the  cause  of  price 
fluctuation.  This  is  indeed  a  strange  confusing  of  cause  and 
effect.  As  well  say  that  where  there  are  many  umbrellas 
there  is  (for  that  reason)  much  rain:  where  there  are  many 
hospitals  and  ambulances  there  is  (for  that  reason)  much 
sickness. 

We  have  commodities  in  which  there  is  no  speculation: 
yet  there  is  price  fluctuation.  Take  a  government  bond,  for 
instance.  There  is  stamped  on  its  face  in  very  plain  figures 
just  what  its  amount  is.  It  will  be  paid  in  gold  in  full — no 
doubt  about  that.  No  speculators  are  trading  in  govern- 
ment bonds  of  the  United  States  Government.  Yet  the 
price  of  these  bonds  fluctuates  from  day  to  day.  For  in- 
stance, here  are  the  figures  from  the  last  annual  report  of  the 
Comptroller  of  Currency  of  the  United  States: 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       121 

UNITED  STATES  BONDS — MONTHLY  RANGE  OF  PRICES  IN  NEW 
YORK,  NOVEMBER,  1917,  TO  OCTOBER,  1918,  INCLUSIVE 

(Annual  Report  Comptroller  of  the  Currency.    December  2,  1918. 
Vol.  2,  p.  38,  p.  39,  Washington,  1919) 

Coupon  bonds  of  1925— Range  from  104  to  107% 


Date 

Open 

1917  Nov. 

105    -106 

Dec. 

104 

1918  Jan. 

104    -105 

Feb. 

1043-^-106 

Mar. 

1045/8 

Apr. 

104^ 

May 

105 

June 

1053^-106 

July 

106 

Aug. 

106 

Sept. 

106 

Oct. 

106 

High 
1053-6-106 
104V8-105M 

1043/6-105^ 
inc       infi 

Low 
104 
104 
104    -105 
1043/6-106 
104^ 

105    -1053^ 
106 
106 
106 
106 

1063/6 

Closing 
104 
104    -105 
104Ji-105i 

1UO         1UO 

1045/8 
105 
1053^-1063^ 
105M-107 
106^ 
106^ 
106^6 

1063/6-1073/6 

104^ 
105 
1063^ 
106 
1063^ 
106^ 
1063^ 
1063^-107 

Panama  3s  of  1961— Range  from  80  to  85 

1917  November 80  80  80  80 

December 84  84  80  80 

1918  January 80  82  80 

February 80  80  80 

March 81  81  80  80 

April 80  80  80  80 

May 80  85  80  85 

June 85  85  85  85 

July ' 85  85  85  85 

August 85  85  85  85 

September 85  85  85  85 

October..                            ..85  85  85  85 


122      SPECULATION    AND    THE    CHICAGO    BOARD    OF   THADE 

Other  United  States  Bonds 

First  Liberty  Loan  3  KS.       Range    97 . 30  to  102 . 40 

4s  of  1925 104        to  107.50 

2s  of  1930 96.50  to    98.75 

It  is  interesting  to  note  that  the  Liberty  Bonds  sold  during  April 
nnd  May,  1920,  as  low  as  82. 

Since  these  bonds  are  legal  investments  for  savings  banks, 
trust  funds,  etc.,  they  cannot  be  looked  on  as  having  their 
price  fluctuations  caused  by  speculators.  They  offer  proof 
that  prices  fluctuate  wholly  independent  of  the  activities  of 
speculators. 

Instead  of  causing  fluctuations,  speculation  on  the  organ- 
ized exchanges  lessens  fluctuations.  One  test  we  may  apply 
to  this  statement  is  to  take  two  commodities  of  similar 
nature,  produced  in  many  countries  of  the  world,  both  used 
for  human  food  and  for  animal  feed, — one  traded  in  for 
future  delivery  (i.  e.,  in  the  speculative  market),  the  other 
not  so  traded  in.  Wheat  and  barley  are  such  commodities. 
If  we  compare  their  extreme  fluctuations  in  price  on  the 
Chicago  market  for  a  series  of  years,  we  find  the  fluctuations 
in  barley  are  much  more  violent  than  the  fluctuations  in 
wheat.  Oats  are  very  similar  to  barley  as  to  their  general 
production  and  use.  But  future  trading  in  oats  tends  to 
stabilize  oats  prices.  A  comparison  of  these  three  grains, 
wheat,  barley  and  oats,  can  be  made  by  studying  the  fol- 
lowing table: 

Cash  price  fluctuations  by  per  cents,  for  18  years,  of  wheat, 
barley  and  oats,  on  the  Chicago  Board  of  Trade,  showing 
widest  fluctuations  in  barley.  (Extreme  price  ranges  for 
each  year.) 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       123 


Wheat  Barley                            Oats 

1899 24.2  per  cent  57. 1  per  cent  46.7  per  cent 

1900 42.6  "  97.6  "  25.0 

1901 26.6  "  73.2  "  107.5 

1902 41.0  "  93.3  "  103.4 

'1903 32.5  "  72.2  "  44.0        " 

1904 50.3  "  103.3  "  62.9 

^905 59.2  "  57.1  "  38.0 

1906 42.9  "  52.7  "  tO        " 

1907 71.8  "  175.0  "  68.6 

1908 31.4  "  130.4  "  31.5 

1909 61.2  "  91.9  "  72.2        " 

1910 44.7  "  114.3  "  64.7 

1911 40.5  "  152.6  "  65.8 

1912 43.5  "  233.3  "  93.4        " 

1913 43.1  "  102.4  "  37.1 

1914 70.1  "  79.5  "  52.6 

1915 70.4  "  87.5  "  68.2 

1916 207.3  "  120.6  "  52.5 

Only  once  during  this  period,  namely,  1916,  did  wheat 
show  a  fluctuation  of  over  100  per  cent;  oats  showed  similar 
variation  only  twice  (1901  and  1902);  but  barley  showed 
such  a  price  fluctuation  eight  times  in  eighteen  years. 

The  question  may  be  asked,  why  not  compare  the  fluc- 
.  tuations  in  the  price  of  wheat  before  future  trading  was 
started  with  the  fluctuations  in  wheat  after  future  trading 
was  started?  It  is  desirable  that  this  be  done,  although 
other  factors  than  future  trading  must  be  allowed  for,  par- 
ticularly in  the  early  years  when  transportation  and  com- 
munication were  in  poor  condition.  However,  taking  the 
price  of  wheat  in  the  United  States  for  a  period  of  one  hun- 
dred years,  as  the  writer  has  done  with  great  care,  we  find 
the  price  fluctuations  before  future  trading  to  be  more  than 
twice  as  great  as  the  fluctuations  after  future  trading.  To 


124       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

get  figures  that  were  comparable,  the  price  of  wheat  on  the 
first  day  of  the  year  at  the  office  of  the  Van  Renssalaer  manor 
in  Albany  were  used,  covering  a  period  of  sixty  years 
(1793-1852),  and  showing  the  fluctuations  year  by  year  and 
by  ten-year  periods.  Then  the  price  of  Number  2  wheat  on 
the  Chicago  Board  of  Trade,  the  first  business  day  of  the 
year  for  a  period  of  forty  years  was  taken,  showing  the 
fluctuations  year  by  year  and  by  ten-year  periods.  There 
were  no  organized  grain  exchanges  in  the  country  during  the 
first  period  of  sixty  years.  During  the  forty-year  period, 
1874-1913,  future  trading  on  the  Chicago  Board  of  Trade 
was  very  active.  The  figures  used  for  the  above  conclusion 
are  all  found  in  Appendix  7.  The  available  evidence  all 
shows  that  the  market  had  wider  swings — bigger  fluctua- 
tions— before  the  days  of  future  trading  than  since  the  days 
of  future  trading.  It  also  shows  that  at  the  present  time 
there  are  many  small,  day  to  day  fluctuations  in  the  specula- 
tive commodities,  but  fewer  wide  swings  than  there  are  in 
the  non-speculative  commodities.  (The  term  "non-specu- 
lative commodity"  is  here  used  in  its  purely  technical  sense 
as  meaning  a  commodity  not  traded  in  for  future  delivery — 
not  that  it  is  not  speculated  in,  for  all  cash  grains  are  fre- 
quently speculated  in.) 

An  interesting  example  of  recent  price  fluctuation  is 
that  of  wheat  during  the  year  1919,  during  which  time  there 
was  no  speculation  and  no  future  trading  in  wheat,  the  price 
being  " stabilized"  at  $2.26  a  bushel  by  the  federal  govern- 
ment. In  spite  of  the  government  guarantee  of  price,  the 
pressure  of  demand  for  cash  wheat  put  the  price  up  over  the 
$3.00  mark. 

It  seems  fair  to  conclude,  therefore,  that  speculation  in 
grain  on  the  organized  exchanges  lessens  price  fluctuations. 


THE    CHICAGO    BOARD    OF   TRADE   AND    SPECULATION      125 

(d)  Influence  of  Speculation  in  Raising  and  Lowering 
Prices. — Some  twenty-five  years  ago,  at  a  large  and  rep- 
resentative meeting  of  fanners  a  resolution  was  passed 
condemning  future  trading  in  wheat  on  the  grounds  that 
future  trading  lowered  the  price  of  wheat.  Three  weeks  after 
this  meeting,  500  members  of  the  National  Association  of 
American  Millers  met  in  convention  at  Minneapolis  and 
passed  a  resolution  condemning  future  trading  on  the 
grounds  that  it  raised  the  price  of  wheat.  Apparently  self- 
interest  colored  the  views  of  both  these  groups.  The  truth 
lies  halfway  between  these  extreme  views,  namely,  future 
trading  (i.  e.,  free,  open,  competitive  speculation)  registers 
that  price  where  meet  in  temporary  equilibrium  the  com- 
peting buyers  and  "sellers,  expressing  the  competing  forces  of 
supply  and  demand.  The  difference  between  speculation 
and  a  " corner"  will  be  discussed  below. 

The  "  Phantom  Wheat "  Question. — It  is  sometimes 
plausibly  argued  that  the  man  who  sells  short  a  million 
bushels  of  wheat  has  sold  phantom  wheat,  mere  "wind," 
and  that  this  " fictitious  supply"  of  wheat  must  depress  the 
market.  There  are  two  ways  to  answer  this  fallacy.  The 
first  is,  that  nowhere  in  the  world  is  so  much  information  on 
display,  as  on  the  Grain  Exchange  showing  past,  present 
and  estimated  future  supply  of  wheat,  actual  visible  supply, 
grain  afloat  for  Europe,  condition  of  the  world's  crops, 
condition  of  the  world's  markets,  world's  supply  of  wheat, 
world's  probable  demand  for  wheat.  No  trader  is  misguided 
by  a  supply  of  "millions  of  bushels  of  phantom  wheat." 
The  trader  is  a  very  practical  person,  else  he  ceases  to  be  a 
trader.  He  is  able  to  tell  "phantom  wheat"  from  real 
wheat.  The  second  answer  is,  that  in  every  corner  of  the 
market — when  short  selling  is  greatest  (i.  e.,  when  most 


126   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

" phantom  wheat"  is  sold),  the  demand  for  this  "wind"  ex- 
ceeds the  supply,  and  prices,  instead  of  being  depressed,  are 
raised.  If  selling  a  million  bushels  forces  prices  down,  buy- 
ing the  million  should  force  prices  up.  The  amount  bought 
equals  the  amount  sold.  It  is  just  as  logical  to  reason  that 
the  demand  (by  buyers)  for  " phantom  wheat"  raises  prices. 
Furthermore,  the  man  who  sells  short — granting  for  the 
sake  of  argument  that  he  depresses  prices — closes  out  his 
trade  by  buying  back  what  he  sold;  and  this  buying  "phan- 
tom wheat"  offsets  his  selling  "phanton  wheat."  We 
have  already  seen  in  the  case  of  corners  (most  of  which 
failed)  that  the  buyer  of  the  long  line  of  wheat  was  often 
unable  to  sell  without  putting  the  price  down  more  than  he 
had  put  it  up.  He  was,  in  trade  language,  "able  to  corner 
the  market  but  unable  to  bury  the  corpse." 

Speculation  which  is  under  the  influence  of  a  corner  or  of 
manipulation  fails,  temporarily,  to  reflect  real  supply  and 
demand  values.  The  preceding  history  of  the  Board  of 
Trade  shows,  however,  that  these  disturbing  factors  are  not 
countenanced  by  the  Board  and  are  becoming  less  and  less 
important  features  of  this  market. 

The  daily  fluctuations  of  the  market  price  are  often  cited 
by  speakers  to  prove  that  this  price  is  "artificial,"  is  not 
"sane,"  etc.,  because,  it  is  argued,  supply  does  not  fluctuate 
overnight!*  There  are  two  fallacies  here — one  on  the  supply 
side  and  one  on  the  demand  side.  No  one  knows  exactly 
what  the  supply  is:  it  is  a  matter  of  opinion — expert  opinion, 
backed  by  official  government  crop  estimates  plus  private 
crop  reporting  agencies  of  all  kinds.  But  it  is  still  an  esti- 
mate, a  mere  calculation.  And  the  estimate  may  change 
overnight,  due  to  a  news  report.  A  report  of  black  rust  in 
the  growing  wheat,  for  instance,  causes  a  drop  in  the  esti- 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       127 

mated  supply  and  a  concomitant  rise  in  price:  crop  damage, 
insect  pests,  plant  diseases,  frost,  drouth,  hail,  rain,  etc.,  all 
have  a  certain  weight  in  modifying  the  estimates  of  the  mer- 
chantable supply  of  grain.  Thus,  with  corn  in  1917:  the  crop 
estimate  was  for  the  biggest  corn  crop  in  the  history  of  the 
world.  But  wet  weather  made  the  crop  largely  unmerchant- 
able. From  week  to  week,  the  news  came  into  the  market 
that  the  corn  was  not  keeping,  and  hence  the  " supply" 
figures  often  literally  changed  overnight.  And  as  to  the 
demand  side  of  the  market,  it  is  perfectly  obvious  that 
market  news  from  hour  to  hour  greatly  affects  this  side  of 
the  market.  The  consumer — the  ultimate  dictator  of  the 
market — has  his  mind  (and  his  demand)  influenced  by  both 
physical  and  psychological  factors,  which  it  is  unnecessary 
to  enumerate  here.  Hence  the  conclusion  is  forced  on  us 
that  the  choppy,  small,  wave-like  movement  of  the  future 
market  is  a  true  and  sensitive  barometer  of  the  conflicting 
supply  and  demand  forces. 

An  examination  of  these  market  fluctuations,  and  the 
reasons  given  therefor  by  the  experienced  market  reporters, 
tend  to  confirm  the  statement  that  the  fluctuations  are  not 
artificial,  but  do  reflect  supply  and  demand. 

For  instance,  the  following  statements  covering  one  week's 
trading  on  a  falling  market,  are  compiled  from  the  reports  of 
several  of  Chicago's  leading  market  reporters.  The  aim  of 
the  statement  is  to  state  and  explain  the  market  fluctuations 
for  one  week. 


128      SPECULATION   AND   THE    CHICACO    BOARD    OK   TRADE 

December  Corn.    Chicago  Board  of  Trade.    Week  August  25-30, 1919 
(i.  e.,  Monday  to  Saturday) 

Open  High  Low  Closing  Range 

Aug.  25 ...141     -140K  1433/8  140^  1433/8~       Vs  27/8 

"     26 143)4-142%  143  ^  1413/8  141  %-       5/8  2Vs 

"     27 142  '-141)4  142 Vs  140M  140%-       6/8  l?/8 

"     28 1397/8~138H  1397/s  136Va  137V8-1367/8  3% 

"     29 137^-136^  1393/8  1357/8  139     -138  %  3^ 

"     30 138%-138M  138%  136  136^-      3/8  2% 

Monday,  August  25 

Price  fluctuations — reasons. 

Monday,  Aug.  25.  December  corn.  Open  141-140^  high,  143s/8, 
low  140^. 

Close  1433/8-Y8  range  27/8. 

Receipts — 249  cars. 

Closed  high. 

Sentiment  of  local  traders  is  bearish. 

Texas  offering  corn  freely. 

Rain  in  Kansas  and  Nebraska.  Values  declined  early,  but  later 
rallied.  Bears  buy  back  at  close — causing  upturn. 

Ten  cars  of  new  Texas  corn,  No.  3  white,  were  sold  to-day  to  the 
Armour  Grain  Company  to  come  to  Chicago,  ten  days'  shipment,  at 
189,  or  lie  over  Chicago  September. 


143^-142%        143J£        1413/8        141%-5/8        2  Vs  range 

Receipts  to-day  100. 

To-morrow,  estimated — 125. 

Visible  supply — last  week — decrease 415,000  bushels 

week  year  ago 1,230,000 

Total  visible  now 1,061,000 

Closed  lower. 

Lack  of  outside  interest  in  the  market. 


THE    CHICAGO    BOARD    OF   TRADE   AND    SPECULATION      129 

Local  sentiment  bearish — based  on  Texas  corn  offerings. 
Little  news. 

Outside  markets  down  about  same  as  Chicago. 
Kansas  City  reported  shipping  25  cars  old  corn  to  Milwaukee  and 
20  cars  to  St.  Louis  on  account  of  poor  demand  there. 
The  trade  is  marking  time,  pending  developments. 

Wednesday,  August  27 

142-141^        142Y8        140M        140%-5/8        !7/8 
Receipts  to-day,  148  cars. 
To-morrow,  estimated  135. 
Down,  due  to  selling  by  local  traders. 

Outside  interest  in  market  small:  means  lack  of  buying  power. 
Bad  break  in  hog  market. 

Prospects  of  strikes  in  railway  and  steel  industries. 
Sentiment  excessively  bearish:  news  of  a  depressing  character. 

Thursday,  August  28 

1397/8-138H        1397/s        136Y8        137V8-1367/8        3% 

Receipts  to-day,  147. 

To-morrow,  estimated  157. 

Closed  35/8  lower  than  yesterday. 

Liquidation  from  the  opening:  lack  of  buying  support. 

Texas  offered  corn  in  Chicago  at  1.84.  Cash  corn  is  down  12  a 
bushel  below  high  point  of  last  week. 

Hogs  down,  following  break  of  $1.00  yesterday. 

Public  agitation  to  lower  cost  of  living. 

Market  oversold. 

Sentiment  bearish — anticipating  heavier  receipts  next  week. 

Cash  corn  1  to  5c  lower. 

General  market  demoralization.  Government  fight  on  the  Pack- 
ers. 

Majority  of  trade  look  for  lower  prices. 


130      SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

Friday,  August  29 

13714-136^         1393/8         1357/8        139-138%        3^ 

Receipts  to-day,  157. 

To-morrow,  estimated  128. 

Closed  I'/s  higher  than  yesterday. 

Kansas  crop  report  forecasts  short  crop  (56,500,000  bushels). 

This  report  started  shorts  to  covering. 

Big  broad,  active  market.    Offerings  absorbed  by  strong  interests. 

Previous  Kansas  Crop  figures — July,  87,000,000. 

August  1  (U.  S.),  81,400,000. 

Attitude  of  American  Federation  of  Labor  towards  railway  strike 
promised  a  much  healthier  labor  situation. 

Oversold  condition. 

Saturday,  August  30 

138%-%        138%        136        136^-3/8        2% 

Receipts  to-day. 

Monday,  estimated. 

Closed  23/8  lower  than  yesterday. 

Embargo  on  shipments  of  all  grains  to  Atlantic  and  Gulf  ports. 
(Congestion  at  seaboard  terminals:  lack  of  vessels.) 

Outside  interest  in  market  very  limited. 

Crop  reports  indicate  2,900  million  bushels,  with  quality  the  best 
in  years. 

Month  and  week-end  liquidation. 

Moderate  increase  in  receipts:  predictions  of  heavier  run  during 
coming  week. 

Market  is  a  scalping  affair. 

If  hogs  continue  weak,  farmers  will  sell  corn  and  make  more  than 
by  feeding  it  to  hogs.  A  break  in  cash  corn  would  likely  be  reflected 
in  lower  futures  (Hoyne  &  Company). 

To  carry  this  subject  one  step  further,  let  us  examine  the 
report  on  one  day's  market,  as  given  by  the  press  reporters 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       131 

who  devote  their  entire  time  exclusively  to  this  one  subject. 
They  can  qualify  as  " experts"  in  this  field,  after  a  number 
of  years  of  service.  The  quotations  given  at  length  below  are 
from  an  evening  and  a  morning  Chicago  paper,  both  of 
which  maintain  competent  grain  market  reporters.  A  care- 
ful study  of  these  interesting  reports  throws  considerable 
light  on  the  actual  doings  of  the  market. 

Chicago  Market,  September  19,  1919 — Fluctuations  and 
reasons  therefor.  (As  reported  by  the  Chicago  Daily  News, 
September  19,  1919.) 

LOCALS  UNLOAD  LONG  CORN,  CAUSING  BREAK 

Trade  is  Colorless,  with  Outside  Interest  Light;  Oats  Close  Easier 


Corn  finished  y%  at  1  ygC  lower.  It  was  colorless  market  most  of 
the  session.  Pit  traders  were  bullish  and  bought  on  the  breaks,  but 
they  received  little  outside  assistance  and  their  efforts  to  realize  on 
their  purchases  were  responsible  for  the  closing  break.  Oats  were 
Ys  at  3/8c  lower.  Rye  finished  unchanged  to  %c  higher  and  barley 
l/2  at  1  YSC  higher.*  Provisions  closed  lower.  Local  cash  sales  were 
126,000  bu.  of  com,  131,000  bu.  of  oats  and  3,000  bu.  of  barley. 
Sales  of  50,000  bu.  of  rye  were  reported  to  exporters,  but  some  ship- 
pers said  that  they  offered  rye  and  failed  to  get  an  attractive  bid 
in  return. 

Active  futures  ranged  as  follows: 

Closing 
Corn  High  Low  Sept.  19          Sept.  18 

Dec 1.26Ys          1.23  1.237/8-%      1.24^-25 

Dec 1 .26  Ys          1 .23  1 .237/8-%      1 .243^-25 

May 1.23M          ',1.21  1.21     -5/8      1.22^-     % 

*  Barley.  Future  trading  in  barley,  begun  in  1918,  is  insignificant 
in  volume. 


132      SPECULATION    AND    THE    CUK'ACJO    BOARD    OP   TRADE 


Oats 

Sept 67%  .667/8  .G73/8  .67^ 

Dec 703^  .687/8  .695/8~3^  .69%-     7/g 

May 72%-3/8  .71  .715/8-^  .72    -717/* 


Rye 

Sept  ..............  1.43  1.42'  1.42%          1-42 

Oct  ...............  1.44^  1.43  1.43^ 

Dec  ..............  1.48%  1.47  1.47%          1.47% 

Barley 

New  Sept  .........  1.31^  1.31  1.31^  1.30 

Dec  ..............  1.21  1.20  1.21 


Opening  prices:  September  corn,  $1.48%;  December,  $1.25^; 
May,  $1  .23^  at  %.  September  oats,  67^  at  %c  ;  December,  70% 
at  Y2c}  May,  717/8c.  September  rye,  $1.43;  October,  $1.44^;  De- 
cember, $1.483/2-  Barley,  new  September,  $1.31;  December,  $1.21. 

Closing  prices  a  year  ago  to-day  were:  October  corn  $1.50%  at  5/sJ 
September  oats,  73c. 

It  was  a  two-sided  market  in  corn  and  this  accounted  for  the 
choppy  trend  of  prices.  The  start  was  higher,  due  to  further 
covering  by  shorts  and  the  buying  by  pit  traders,  who  were  inclined 
to  take  the  buying  side  because  of  the  strong  close  yesterday,  and 
the  further  wet  weather,  which  was  construed  by  many  as  a  bull 
factor,  inasmuch  as  it  is  likely  to  retard  the  movement  from  farms. 
The  bulges  brought  out  good  selling,  most  of  it  by  commission 
houses  and  for  eastern  account.  This  caused  locals  to  unload  and  a 
break  followed,  but  purchases  on  the  dip  were  of  sufficient  volume 
to  absorb  the  surplus  and  prices  recovered  to  within  a  small  fraction 
below  the  previous  close.  The  threatened  steel  strike  and  the  fact 
that  it  may  involve  other  industries,  advices  yesterday  saying  that 
the  Lake  Seamen's  union  was  taking  a  strike  vote  to  aid  the  steel 
workers,  was  regarded  as  a  bearish  factor  and  was  responsible  for 
much  of  the  selling  on  the  advance.  Country  offerings  of  corn  to 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION      133 

arrive  are  just  fair.  A  well  posted  cash  handler  said  he  had  advices 
from  one  Iowa  station  of  50,000  bu.  old  corn  being  held  there  be- 
cause of  the  inability  to  get  cars  to  move  it.  Local  receipts  to-day 
were  estimated  at  165  cars.  Overnight  domestic  demand  fair,  with 
sales  of  90,000  bu.  reported.  A  Philadelphia  grain  man  wired  that 
Ohio  and  Indiana  points  were  offering  old  corn  there  4c  under 
Chicago.  Sales  of  50,000  bu.  of  contract  corn  were  reported  to  go  to 
store. 

The  trend  of  oats  prices  was  similar  to  that  in  com.  Higher 
opening  was  due  to  buying  by  pit  traders  and  some  of  the  seaboard 
houses.  Local  bears  and  commissiqn  houses  with  eastern  connec- 
tions were  good  sellers  on  the  upturn.  The  buying  on  the  dips  was 
good  and  prices  held  fairly  steady  at  the  decline.  The  wet  weather 
is  likely  to  interfere  with  the  movement.  Some  of  the  cash  men  re- 
ported a  little  oats  bought  to  arrive  overnight,  but  on  the  whole 
country  offerings  to  arrive  were  light.  Overnight  shipping  demand 
was  not  so  urgent  as  shippers  advanced  their  prices  materially, 
anticipating  a  strong  opening  this  morning;  sales  reported  were 
72,000  bu.  Local  receipts  were  estimated  at  110  cars. 


Cash  Grain  Markets 

Winter  wheat — Steady.  Sales  track  Chicago:  No.  5  red,  $2.12; 
No.  4  red,  $2.16  at  2.1o%  No.  3  red,  $2.20  at  2.21^;  No.  2  red, 
$2.23M  at  2.24;  No.  4  hard,  $2.16  at  2.16^;  No.  3  hard,  $2.20^  at 
2.21;  No.  2  hard,  $2.23^  at  2.24. 

Spring  wheat — Steady.  Sales  track  Chicago:  No.  4  northern, 
$2.28;  No.  3  northern,  $2.24  at  2.36;  No.  2  northern,  $2.45;  No.  1 
northern,  $2.45;  dark,  $2.67  at  2.69. 

Corn — 1  at  3c  higher.    Sales  mixed  lots. 

Chicago  Market,  September  19,  1919 — Fluctuations  and 
reasons  therefor.  (As  reported  by  Charles  D.  Michaels, 
Chicago  Tribune,  September  20,  1919.) 


134       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

LOCAL   TRADERS   SWITCH   TO   BEAR   SIDE   OF   CORN 
Profit  Taking  by  Longs  Helps  them  Depress  Prices 

By  CHARLES  D.  MICHAELS 

Local  sentiment  was  mixed  on  grains,  with  the  bears  the  most 
aggressive  buyers  and  sellers  at  times,  while  commission  houses  were 
fair  buyers  on  weak  spots."  Prices  moved  within  more  reduced 
limits,  and,  although  higher  early,  finished  weak,  with  corn  off  }/%  to 
Ic,  oats  l/s  to  3/sC,  and  rye  unchanged  to  %c  higher  in  Chicago. 

In  the  southwestern  corn  markets  last  sales  were  Ic  higher  for 
September  at  Kansas  City  and  5/8  to  l^c  lower  on  other  months. 
Oats  there  were  off  %  to  3/gC  and  in  Minneapolis  unchanged  to  34  c 
lower,  while  Winnipeg  was  */j  to  5/s  c  lower. 

Locals  Bearish  on  Corn 

Local  traders  generally  switched  to  the  bear  side  of  corn  over- 
night due  to  the  failure  of  stimulating  news  to  develop,  and  with  the 
assistance  of  heavy  profit  taking  by  longs,  especially  at  $1.26  for 
December  on  resting  orders,  were  able  to  depress  prices  2%  at  3l/sc 
from  the  high  point  at  the  opening,  with  the  close  on  a  moderate 
rally.  December  finished  at  $1.237/s,  and  May  at  2c  discount,  while 
September  was  $1.47.  Trade  in  the  latter  was  much  smaller,  and  it 
'showed  more  strength  than  the  deferred  deliveries,  although  50,000 
bu.  mixed  were  sold  to  go  to  store  for  delivery. 

Impending  strike  of  steel  workers  had  considerable  effect  on  pit 
sentiment,  but  it  was  very  noticeable  that  at  $1.25  for  December 
and  on  every  cent  decline  there  was  a  good  class  of  commission 
house  buying  on  resting  orders.  At  the  high  point  the  new  crop 
futures  were  up  around  lOc  from  the  recent  low,  which  many  thought 
was  sufficient  for  the  time  being. 

While  country  offerings  were  slightly  larger,  the  eastern  demand 
was  not  as  keen  as  of  late.  Sales  for  shipment  aggregated  125,000  bu. , 
including  10  cars  of  new  for  December  shipment  at  $1.50,  delivered 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       135 

New  England  points.  Sample  values  were  unchanged  to  3c  higher, 
with  $1.50  paid  for  No.  1  white  and  yellow,  but  they  were  wanted 
for  special  purposes  and  sold  on  the  billing.  Receipts  157  cars. 

Strong  Undertone  in  Oats 

While  many  of  the  local  traders  were  bearish  on  oats,  they  failed 
to  fully  reflect  the  weakness  in  corn  and  closed  with  only  fractional 
losses,  with  September  673/8c,  December  69*/£c,  and  May  71^c. 
September  gained  34  c  on  the  December,  and  the  cash  situation  is 
becoming  tighter  due  to  the  limited  movement  of  the  cash  grain 
from  the  interior.  Eastern  demand,  however,  was  slower,  with 
sales  of  175,000  bu.  Choice  No.  2  whites  sold  at  3  to  4c  over  Septem- 
ber, a  wider  premium  than  has  existed  for  some  time. 

At  one  time  oats  broke  only  ^c,  while  corn  dropped  2%c.  On 
the  breaks  there  was  commission  house  buying,  and  the  pit  shorts 
covered  frequently.  Sample  values  were  unchanged  to  2c  higher, 
with  receipts  85  cars.  Deliveries  60,000  bu. 

Seaboard  Buys  Rye  Futures 

Trade  in  rye  was  less  active,  but  the  market  had  a  firm  undertone 
with  some  buying  early  that  was  attributed  as  for  seaboard  account, 
and  a  possible  reflection  of  export  sales,  but  the  latter  could  not  be 
confirmed.  Futures  closed  unchanged  to  %c  higher,  reacting  to- 
ward the  last  with  corn.  No.  2  on  spot  was  %  to  MC  under  October 
with  sales  at  $1.44.  Receipts,  12  cars. 

Heavy  weight  barley  was  in  demand,  and  with  light  offerings  full 
prices  were  readily  obtained.  Lower  grades  were  neglected.  Feed 
dealers  bought  moderately  and  this  kind  was  quoted  as  1  to  2c 
higher  by  some,  while  others  said  it  was  unchanged.  Spot  sales  were 
at  $1.17  to  $1.32,  with  receipts  21  cars. 

Timothy  seed  advanced  25c  for  cash,  with  sales  to  $9.00  to  $10.75. 
March,  $12.50  bid,  per  100  Ibs.  Toledo  5c  lower;  October,  $5.55  per 
bu.  of  45  Ibs.  Clover  seed  unchanged.  Country  lots,  $30.00  to 
$40.00  per  100  Ibs.  Toledo  45c  higher;  October,  $29.95  per  bu.  of 
60  Ibs. 


136      SPECULATION   AND    THE    CHICAGO    BOARD    OF    TRADE 

WORLD'S  GRAIN  MARKET  NEWS 

A  very  weak  feeling  prevailed  in  the  grain  markets  late  yesterday. 
Under  ordinary  conditions  such  a  condition  would  have  been  taken 
as  a  possible  forerunner  for  an  upturn,  as  a  few  traders  observed. 
The  rank  and  file  of  the  local  element  were  bearish  and  predicted 
lower  prices,  basing  their  belief  on  the  possible  general  strike  of 
steel  workers,  which,  should  it  develop  proportions  claimed  by  the 
union  leaders,  will  unsettle  business  and  affect  all  markets  by 
intimidating  buyers.  Most  of  the  selling  yesterday  was  attributed 
to  local  operators,  while  a  number  of  the  commission  houses  ap- 
peared to  have  buying  orders  on  all  breaks.  Under  conditions  like 
the  present  all  the  depressing  factors  stand  out  strongly  and  courage 
is  needed  to  be  much  of  a  bull. 

It  was  asserted  by  a  trader  who  had  studied  the  market  closely 
all  day  that  the  corn  and  oat  markets  were  oversold,  and  any  at- 
tempt to  cover  might  send  prices  higher  for  a  time.  One  commis- 
sion house  asserted  that  the  oat  market  was  overbought,  while  a 
pit  observer  said  it  was  the  reverse,  and  that  the  absence  of  pressure 
of  cash  offerings  made  short  sales  unsafe  on  breaks.  It  was  possible 
to  get  a  greater  variety  of  opinions  than  usual. 

"The  weight  of  the  corn  itself  must  be  felt  before  prices  decline 
much  further,"  said  one  commission  man.  "Speculative  holdings 
have  been  well  liquidated." 

There  has  been  considerable  buying  of  German  marks  by  some 
of  the  members  of  the  grain  trade,  who  see  a  chance  of  making  an 
excellent  profit.  With  the  par  value  of  a  mark  23. 8c,  they  cannot 
see  how  it  will  decline  much  more  now  that  it  is  under  4c.  Cables 
from  Europe  of  late  have  indicated  that  the  recovery  of  business  in 
Germany  is  probably  more  rapid  than  in  England  and  France.  The 
buying  has  been  based  simply  on  the  speculative  possibility.  Calls 
good  nine  months  have  been  secured  in  some  instances. 

Reports  of  export  business  in  oats  were  in  circulation  yesterday. 
It  is  understood  that  they  arose  from  a  canceled  London  order,  the 
original  seller  promptly  reselling  the  grain  to  another  exporter. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       137 

Fresh  business  is  regarded  as  out  of  the  question  at  the  present  time. 
From  1907  to  1912  the  average  exports  per  year  from  the  United 
States  did  not  exceed  4,000,000  bu.  In  1913  they  were  33,759,000 
bu.  The  record  was  made  for  the  year  ended  June  30,  1918,  when 
105,881,000  bu.  were  exported.  For  the  year  ended  June  30,  1919, 
they  were  96,360,000  bu. 

Good  rains  have  /alien  over  the  west  and  southwest  the  last  two 
days.  In  Nebraska  they  ranged  from  a  sprinkle  to  4.30  inches.  Red 
Cloud  had  6.93  inches,  and  several  points  had  two  inches  or  more. 
The  benefits  will  be  two-fold :  reviving  pastures  and  putting  ground 
in  shape  for  plowing  and  winter  wheat  seeding.  A  message  from 
Geneva,  Neb.,  said:  "Half  inch  rain,  wetting  the  ground  for  first 
time  in  three  months.  Pastures  greatly  benefited.  Paxton,  Neb., 
says  rain  has  put  the  ground  in  fine  shape  for  fall  plowing,  and 
enormous  acreage  of  winter  wheat  is  being  seeded  as  fast  as  the 
ground  can  be  prepared.  Corn  here  is  out  of  the  way  of  frost  and  a 
big  crop  assured." 

A  Board  of  Trade  membership  sold  yesterday  at  $10,300  net  to 
the  buyers,  a  drop  of  $550  from  previous  trade. 


CASH  GRAIN  NEWS 

Shipping  sales  of  corn  were  125,000  bu.  and  oats  175,000  bu. 
Deliveries  on  September  trades  were  60,000  bu.  oats  and  6,000  bu. 
rye. 

Spring  wheat  was  in  good  milling  demand  and  all  good  to  choice 
grades  were  readily  taken  at  full  prices,  with  a  few  cars  of  choice 
dark  northern  at  a  small  advance.  Winter  grades  were  at  basic 
prices  to  Ic  over.  Arrivals  here  were  408  cars.  Withdrawals 
336,000  bu.  and  shipments  by  lake  280,000  bu.  and  by  rail  226,000 
bu.  Exports  from  the  seaboard  were  787,000  bu.  Minneapolis 
was  unchanged  to  5c  lower.  Arrivals  405  cars,  against  540  cars  a 
week  ago  and  377  cars  last  year.  Duluth  Jiad  82  cars,  against  804 
cars  last  year.  St.  Louis  and  Kansas  City  were  unchanged. 

Corn  sold  readily  with  offerings  not  large  and  arrivals  157  cars 


138      SPECULATION    AND    THE    CHICAGO    BOARD    OF   TRADE 


here.  Prices  unchanged  to  3c  higher,  with  50,000  bu.  No.  2  mixed 
sold  to  go  to  store.  Mixed  was  September  price  to  Y^  over,  white 
l/2.c  over,  and  yellow  l^c  over.  At  the  last  some  No.  3  white  sold 
at  }/£c  over  September.  Peoria  1  to  2c  higher,  with  17  cars  in. 
St.  Louis  1  to  2c  up,  and  Omaha  3  to  5c  higher.  Kansas  City  little 
changed,  with  trading  there  light. 

Oats  sold  readily,  with  prices  unchanged  to  2c  higher.  Choice 
33  and  34  Ib.  No.  2  whites  brought  3  to  4c  over  September.  The 
ordinary  No.  3  whites  sold  at  2^c  under  December.  Arrivals 
92  cars.  Peoria  had  3  cars  and  prices  were  %  to  %c  higher.  St. 
Louis  y<fi  higher  and  Kansas  City  Ic  lower. 

Cash  prices  for  grains  in  the  leading  markets  follow  : 

CORN 

Chicago  Omaha  Peoria 

No.  1  mx  ........  1.47%  to  1.49  1.48 

No.  2mx  ........  1.47%  to  1.48^  1.4S 

No.  3mx  ..................  1.4.5 

No.  4  mx  ..................  ....  1.17 

No.  6mx  ........  1.44^  to  1.45 

No.  1  yel  ........  1  .49      to  1  .49j^  1  49 

No.  2yel  ........  1.49      to  1.50  1.45  1.48^  to  1.49 

No.  3  yel  ........  1.48^  1.45  1.4S 

No.  4  yel  ..................  ....  1.47 

No.  6  yel  ........  1.44^  to  1.45  1.43 

No.  1  wh  ........  1.48^  to  1.50 

No.  2wh  ........  1.48>£  to  1.49  ....  1.48 

No.  3wh  ........  1.47      to  1.47^ 

No.  6wh  ........  1.45  1.43 

Milwaukee  Kansas  City  St.  Louis 

No-.  2mx  ........  1.45^  1.48  1.48 

No.  3mx  ........  1.45^ 

No.  lyel  ........  1.46^ 

No.  2  yel  ........  1.46^  149 

No.  3  yel  ........  1.46^  ....  1.48 

Ho.  2wh..  1.48  1.49 


THE    CHICAGO    BOARD    OF    TRADE    AND    (SPECULATION       139 

Minneapolis  Buffalo  Toledo 

No.  3yel 1.44      to  1.45  1.51 

No.  4yel 1.42      to  1.43  ..'.. 

No.  3mx 1.43      to  1.44  

OATS 

Chicago  Kansas  City  St.  Louis 

No.  2  wh 69%  to  71                            . ,  69      -  69^ 

No.  3wh 66%to70                            67  68      —  683^ 

No.  4wh 65      to  68                            67  67 

Milwaukee  Omafe**  Minneapolis 

No.  2  wh 68%  to  69%  645/8  to  67Vs 

No.  3  wh 66%  to  693/8  66      to  66^  64J/8  to  665/8 

No.  4  wh 65%  to  68%  65  ^  to  66  615/8  to  645/s 

Buffalo                       Toledo  Peoria 

No.  1  wh 75  

No.  2wh 74^  72      at  74^ 

No.  3wh 73^                   67^ 

RYE,   BARLEY   AND  FLAX 

Rye  Barley                     Flax 

Chicago 1.44  1.15  to  1.32 

Milwaukee 1 .43  —  1 .44  1 .23  to  1 .39 

Minneapolis 1.39|^  95  to  1.26          4.81  to  4.87 

Duluth 1.42^  98  to  1.25                       4.88 

NEWS  OF  THE  CROPS 

Plowing  for  winter  wheat  is  15  per  cent  less  than  normal  for  this 
season,  as  shown  by  reports  to  the  Modern  Miller,  and  is  35  per  cent 
less  than  at  this  time  last  year.  The  delay  was  caused  by  drought 
arid  hard  ground.  Plowing  for  spring  wheat  has  been  comparatively 
small  so  far,  although  farmers  have  put  in  less  time  thrashing  and 
moving  wheat  than  ever  before  at  this  season. 

Wheat  thrashing  in  the  southwest  is  delayed  by  scarcity  of  cars 
and  thrashing  crews.  Much  wheat  is  being  piled  on  the  ground. 


140      SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

It  is  expected  that  there  will  be  a  falling  off  in  the  wheat  movement, 
as  farmers  say  they  intend  to  hold  wheat  for  higher  prices.  Corn  is 
mainly  out  of  the  way  of  frost. 

Practically  all  of  the  corn  is  out  of  danger  from  frost,  according  to 
the  American  Steel  and  Wire  Company's  weekly  report.  Much  of 
it  is  in  shock,  and  silo  filling  is  progressing  rapidly.  Owing  to  dry 
and  hard  soil  fall  plowing  is  much  delayed  and  the  wheat  acreage 
will  be  greatly  lessened. 

CHICAGO  GRAIN  RECEIPTS 
Inspection  of  grain  by  cars  for  Friday  follows: 

Nos.  1  and  2  No.  3  No.  4  No  grade  Total 

Hard ....51  47  43               14  155 

Red 79  83  20                 9  191 

Mixed 11  7  8                 2  28 

Spring 12  10  9                 3  34 

Totals 153  147          80  28  408 

Corn 130  8  19  157 

Oats 21  61             3  ..  85 

Rye 6  33  ..  12 

Barley 9            7  5  21 

GRAIN  STATISTICS 

Argentine  exports  of  grain  the  last  week  aggregated  nearly 
8,000,000  bu.  Details  follow: 

Wheat  Corn  Oats 

This  week 3,421,000  3,825,000  467,000 

Last  week 4,706,000  2,628,000  418,000 

Last  year 1,233,000  647,000  636,000 

Since  Jan.  1 74,993,000  50,197,000  10,408,000 

Year  ago 102,130,000  12,557,000  21,350,000 

Visible  supply 

This  week 1,850,000  4,800,000 

Last  week 1,850,000  4,400,000 

Last  year 3,300,000  3,960,000                 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       141 

North  American  exports  of  wheat  and  flour  are  holding  up  well 
despite  the  slow  unloading  of  boats  at  European  ports.  Details,  as 
compiled  by  Bradstreet's  follow: 

Wheat  and  flour,  bu.  Corn,  bu. 

This  week 8,146,000  42,000 

Last  week 8,010,000  50,000 

Last  year 4,438,000  72,000 

Since  July  1 79,961,000  754,000 

Year  ago 62,511,000  7,213,000 

PRIMARY  RECEIPTS 

Primary  receipts  of  grain  yesterday,  with  the  last  three  ciphers 
omitted,  follow: 

RECEIPTS  SHIPMENTS 

WESTERN  POINTS  Wheat  Corn  Oats  Wheat      Corn      Oats 

Chicago 610  255  317  506       183         193 

Milwaukee 119  46  63  34          25 

Minneapolis 535  10  69  224           7         103 

Duluth 438  

St.  Louis 366  38  98  244         20           62 

Toledo 53  3  8  14          1              7 

Detroit 13  14  9               6 

Kansas  City 393  13  15  211           6           25 

Peoria 25  59  27  28         39           59 

Omaha 132  10  6  92         20           22 

Indianapolis 23  44  45  14          19             7 

Totals 2,697         492         657  1,338        299         509 

Week  ago 2,502         602         682  886       282         569 

Year  ago 2,742       1,061       1,291  1,379       565         525 

SEABOARD 

Totals 787     30    297      747   ...    101 

Year  ago 537     10     66      296   ...    170 


142   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

These  detailed  and  extended  quotations  represent  the 
amount  and  kind  of  market  information  available  to  every 
trader  every  day  on  the  Chicago  Board  of  Trade,  and  avail- 
able, furthermore,  to  the  general  public.  This  illustrates 
how  well  the  Board  performs  one  of  its  original  functions, 
namely,  "to  acquire  and  to  disseminate  valuable  commer- 
cial and  economic  information."  This  quotation  also  throws 
some  light  upon  the  fallacy  of  " phantom  wheat"  depressing 
prices  or  otherwise  affecting  the  market. 

Judging  the  market  by  what  it  does  and  by  the  way  it  acts, 
the  conclusion  is  warranted  that  the  bulls  and  bears  put  on 
the  brake:  if  the  bear  feels  the  price  is  too  high,  he  sells 
short — putting  the  brake  on  a  further  rise;  if  the  bull  thinks 
prices  are  low,  he  buys,  putting  the  brake  on  a  further  fall. 
Thus  the  choppy  market,  between  bulls  and  bears,  full  of 
small  fluctuations  but  free  from  wide  swings  not  justified  by 
crop  conditions.* 

*  Contrast  the  Chicago  market — with  abundant  information  every 
hour  concerning  world  markets,  with  Argentina's  market — with  dearth 
of  market  information,  and  a  proposed  fortnightly  service.  The  fol- 
lowing quotation  from  our  official  consular  reports  makes  clear  the 
situation: 

"Investigation  of  Grain  Markets  in  Argentine.  Proposed  Corn 
Commission" 

"The  condition  of  the  corn  market  is  regarded  as  serious.  The 
stock  on  hand  is  not  large,  and  the  quality  is  good,  but  the  price  is  low. 
This  depreciation  is  attributed  not  only  to  high  freights  and  limited 
demands  from  consuming  countries,  but  to  the  fact  that  individual  pro- 
ducers are  not  well  informed  regarding  world  markets,  and  are  unable 
to  withstand  the  concerted  action  of  a  few  buyers.  It  is  recommended 
that  the  Government  establish,  through  the  Minister  of  Agriculture,  a 
fortnightly  service  of  official  information  on  world  markets.  It  is  also 
recommended  that  the  President  appoint  a  special  commission  to  ac- 
cept consignments  of  corn  from  farmers  and  merchants  for  sale  and 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION      143 

(e)  Corners. — An  artificial  corner  of  the  market  occurs 
when  the  buyer  has  intentionally  bought  more  grain  than  the 
short  seller  can  deliver.  A  natural  corner  of  the  market 
occurred  during  the  World  War  (in  April  and  May,  1917) 
when  the  government  grain  buyers,  buying  contracts  in  May 
wheat,  had  purchased  more  contract  grade  wheat  than  was 
available  for  delivery.  The  situation  was  temporarily  acute 
in  Winnipeg  and  Chicago,  where  the  future  contracts  were 
mostly  placed.  The  allied  governments  in  the  end  accepted 
much  wheat  below  contract  grade,  at  a  discount.  Such  a 
corner  is  wholly  free  from  manipulation  or  wrong  intention. 
It  was  due  to  the  emergencies  of  war.  The  artificial  corner 
—the  deliberately  planned  corner — has  already  been  de- 
scribed in  this  report.  Some  experts  in  Grain  Exchange 
problems,  such  as  John  Hill,  Jr.,  consider  only  those  corners 
artificial  in  which  the  operator  takes  steps  to  impede  and 
check  and  make  difficult  the  delivery.  For  the  "natural 
corner"  he  blames  only  the  short  seller. 

The  popular  fallacy  about  corners  is  that  they  are  the 
fruit  of  the  grain  exchanges;  that  before  we  had  grain 
exchanges  we  had  no  corners;  and  that  should  grain  ex- 
changes be  abolished  corners  would  cease.  We  may  classify 
these  beliefs  as  "  superstitions, "  since  a  superstition  is  de- 
fined as  a  belief  not  founded  on  facts. 

It  is  not  necessary  to  ransack  many  pages  of  ancient  his- 
tory to  find  that  corners  were  common  two  or  three  thousand 

shipment.  This  commission  would  obtain  credit  from  national  banking 
institutions,  with  the  corn  as  security,  and  it  would  advance  4  pesos 
($1.70)  per  100  kilos  as  a  maximum  on  the  corn  received  for  sale.  Upon 
receipt  of  proceeds  from  the  sale  of  the  corn,  all  accounts  would  be 
liquidated.  This  measure  is  recommended  for  immediate  adoption." 
Daily  Commerce  Reports,  September  7,  1916,  p.  903. 


1  14       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

years  ago.  Just  as  an  illustration  of  this,  take  the  writings 
of  one  of  the  world's  greatest  thinkers  of  all  time — Aristotle. 
Writing  in  Greek  about  300  years  before  Christ,  he  pictures 
two  corners  which  seem  almost  modern  in  their  setting,  even 
to  the  use  of  "margins."* 

"He  (Thales)  knew  by  his  skill  in  the  stars  while  it  was 
yet  winter  that  there  would  be  a  great  harvest  of  olives  the 
coming  year;  so  having  a  little  capital,  he  gave  earnest 
money  for  the  use  of  all  the  olive  presses  in  Chios  and 
Miletus,  which  he  hired  at  a  low  price  because  no  one 
bid  against  him.  When  the  harvest  time  came,  and  many 
wanted  them  all  at  once  and  of  a  sudden,  he  let  them 
out  at  any  rate  which  he  pleased,  and  made  a  quantity  of 
money." 

"There  was  a  man  of  Sicily,  who,  having  money  deposited 
with  him,  bought  up  all  the  iron  from  the  iron  mines:  after- 
wards, when  the  merchants  from  their  various  markets 
came  to  buy,  he  was  the  only  seller,  and  without  much  in- 
creasing the  price  he  gained  200  per  cent. " 

It  seems  that  human  nature  has  not  changed  much  since 
the  days  of  Aristotle.  At  any  rate,  the  economic  history  of 
different  peoples  continues  to  record  corners  in  all  sorts  of 
commodities,  and  will  continue  to  do  so,  until  proper  ma- 
chinery is  created  to  control  corners,  governmental  or  other- 
wise. One  school  of  thinkers  always  says  about  all  prob- 
lems: "Let  the  government  do  it. "  The  writer  claims  some 
familiarity  with  the  government,  and  his  contention  is,  that 
so  far  as  corners  are  concerned,  the  grain  exchanges  them- 
selves suffer  most  and  profit  least  by  corners,  and  hence  may 
be  depended  on  to  work  out  the  machinery  necessary  to  end 
this  evil. 

*  Aristotle's  Politics  (Jowett's  translation),  p.  48. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       145 

But  to  submit  further  evidence  of  corners,  before  the  days 
of  the  exchanges. 

Coming  down  to  our  own  country,  we  may  give  a  few 
quotations  from  the  outstanding  economic  authority  of  the 
period  following  the  War  of  1812,  namely,  Nile's  Weekly 
Register. 

These  quotations  are  worthy  of  very  careful  study,  and 
the  sophisticated  reader  will  read  much  between  the  lines. 

Very  Late  from  England 

Everybody  was  on  tip-toe  in  Baltimore  on  Thursday  last. 
Every  one  was  asking  "what's  the  news?"  Expresses  had  arrived 
in  the  preceding  night  and  others  were  despatched  with  great  haste 
and  mystery.  The  speculators  wefre  abroad;  flour  immediately  rose 
$3  per  barrel,  wheat  was  up  to  $3  per  bushel;  corn  at  $2,  and  oats  at 
$1.25.  No  one  seemed  to  know  why  this  hurly  burly  was  raised — 
there  was  said  to  have  been  an  arrival  at  New  York  in  a  very  short 
passage — it  was  said  that  there  was  a  revolution  in  England — it  was 
said.  .  .  .  What  was  not  said?  Curiosity  made  up  stories  to 
gratify  itself,  and  anything,  probable  or  improbable,  was  said.  The 
only  fact  ascertained  was,  that  the  knowing  ones  were  purchasing 
up  all  the  flour,  etc. 

Then  we  heard  that  the  Harlequin,  formerly  an  American  priva- 
teer, had  arrived  at  New  York  from  Liverpool — that,  on  the  Satur- 
day previous  to  her  sailing,  she  had  not  a  mast  standing,  and  was 
every  way  unfitted  for  sea,  but  that  she  sailed  on  the  following 
Monday,  all  things  being  prepared  in  the  interim  of  two  days,  and 
was  towed  out  of  the  harbor  by  a  steam  boat.  She  was  ballasted 
with  salt,  and  brought  no  letters  or  papers  that  had  been  made 
public.  She  was  first  reported  to  have  had  a  passage  of  28  days — 
this  was  denied,  and  her  passage  was  given  at  48  days — but  the  fact 
was,  that  she  left  Liverpool  on  the  14th  of  October.  Thus  the  thing 
was  twisted  and  turned  in  New  York,  exciting  the  same  desires  and 
uncertainties  that  it  did  in  Baltimore. 


146      SPECULATION   AND    THE    CHICAGO    BOARD    OF    TRADE 

Just  after  this,  it  was  said  to  be  ascertained  that  there  would  be  a 
scarcity  in  England,  and  that  the  import  of  flour  and  grain  would  be 
immediately  permitted.  But  could  this  fact  be  so  suddenly  ascer- 
tained?— would  flour  bear  the  cost  here  of  $14  per  barrel? — Were 
not  the  crops  in  some  parts  of  Europe,  in  Poland  and  Sicily,  espe- 
cially (its  great  granaries),  abundant? — etc.  All  were  lost  in  con- 
jecture; but  it  was  generally  agreed  that  some  great  event  had  taken 
place! 

Thus  the  matter  stood  on  Thursday  evening.  The  mail  of  Friday 
morning  settled  the  business  down  into  this — that  it  was  a  mere 
commercial  speculation — a  manoeuvre  to  buy  or  to  sell  some  certain 
sorts  of  commodities;  and  letters  from  England  of  the  14th  of 
October  were  published,  saying  it  was  concluded  that  the  crop 
would  be  short  by  a  third — that  American  wheat  would  sell  for 
16s  per  70  Ibs.,  and  flour  at  65s  per  barrel.  If  the  crops  be  really 
one-third  of  their  usual  quantity  short,  greatly,  indeed,  must  the 
distresses  of  the  people  be  increased!  Ireland  too,  which  last  year 
had  an  abundance,  in  consequence  of  the  coldest  and  wettest  sum- 
mer ever  known  (there  were  only  5  or  6  days  favorable  to  the 
harvest)  will  be  exceedingly  straightened. 

The  bubble  seems  to  have  burst,  and  speculation  is  already  at  an 
end  here.  It  is  not  believed  that  anything  important  has  transpired 
in  Europe.  Flour  is  falling,  and  probably  will  be  at  its  former  price 
in  a  day  or  two.  The  moral  honesty  of  this  mercantile  hoax  is  very 
questionable.  Niks'  Weekly  Register,  Vol.  XI,  p.  189.  Nov.  16, 
1816. 

Spain  and  Portugal  are  quietly  proceeding  to  the  organization  of 
their  newly  acquired  rights  and  liberties,  and  France  is  still.  Several 
letters  from  England  give  doleful  accounts  of  the  state  of  the  wheat 
crop — in  consequence  of  a  long  season  of  wet  and  damp  weather, 
it  had  very  generally  grown  in  the  ear.  This  caused  some  rise  in  the 
price  of  flour  at  Baltimore — as  high  as  six  dollars  per  barrel  was 
asked  on  Tuesday  last — on  Thursday,  in  consequence  of  later 
intelligence  which  came  on  from  New  York  by  express,  eight  dollars 
were  asked,  which  price  it  still  nominally  maintains;  but  we  have  not 


THE    CHICAGO    BOARD    OF    TBADE    AND    SPECULATION       147 

heard  of  any  sales,  and  there  is  but  a  small  quantity  in  market. 
Indeed,  we  apprehend  that,  from  the  low  price  of  wheat  last  year, 
which  checked  its  cultivation  in  the  present,  as  well  as  from  the 
short  crops  at  the  late  harvest,  we  have  not  a  great  deal  to  spare, 
unless  there  is  much  of  it  far  in  the  interior  or  in  the  western  states. 
We  are  not  satisfied,  however,  that  the  whole  matter  is  anything 
more  than  the  acts  of  speculators.  We  have  been  oftentimes 
amused  with  such  reports  from  England;  but  one  of  the  passengers 
in  the  ship  that  brought  the  news  and  her  owners,  have  made  heavy 
purchases  of  flour  at  New  York  and  Philadelphia;  at  the  latter,  sales 
were  made  at  seven  dollars,  and  orders  are  said  to  have  been  received 
to  purchase  large  quantities  at  eight.  The  passenger  is  stated  to 
have  left  the  ship,  so  that  he  was  in  New  York  incognito  a  whole  day 
before  she  actually  arrived,  during  which  he  drained  the  market. 
Niks'  Weekly  Register,  Vol.  XXI,  Oct.  27, 1821,  p.  129. 

Great  Britain.  It  appears  certain  that  the  crop  of  wheat  has  been 
exceedingly  injured  by  successive  rains,  and  that  a  great  advance 
had  taken  place  in  the  price  of  flour — Thirty-five  shillings  (nearly 
$8),  per  barrel  had  been  offered  at  Liverpool  for  a  cargo  of  Philadel- 
phia flour  and  refused — 38  to  40s.  asked.  The  harvest  on  the 
continent  is  also  reported  to  be  very  short  and  much  damaged  by 
the  rains.  Niks'  Weekly  Register,  Vol.  XXI,  Oct.  27,  1821,  p.  144. 

One  Week  Later 

FLOUR.  We  are  much  inclined  to  believe  that  the  late  rise  in  the 
price  of  this  article  had  little  more  than  the  spirit  of  speculation  for 
its  foundation.  The  real  sales  made  in  Baltimore  were  of  a  small 
amount,  and  both  buyers  and  sellers  are  now  at  a  stand — the  price 
of  the  commodity  is  nearly  nominal,  except  what  is  sold  for  domestic 
consumption,  which  is  various  and  uncertain.  Later  advices  from 
Europe  are  impatiently  waited  for. 

There  are  verbal  reports  by  an  arrival  at  New  York,  a  day  or  two 
later  from  Liverpool,  that  the  crops  were  turning  out  better  than 
was  expected,  and  that  the  market  had  not  advanced.  Niks' 
Weekly  Register,  Vol.  XXI,  Nov.  3,  1821,  p.  145. 


148      SPECULATION    AND    THE    CHICAGO    BOARD    OF   TRADE 


One  Week  Later 

There  is  an  arrival  at  New  York  that  gives  Liverpool  dates  of  the 
22nd  Sept.  No  particulars  of  importance  have  yet  reached  us, 
except  unqualified  assurances  that  sales  of  wheat  and  flour  were 
dull,  and  that  the  ports  cannot  open.  They  had  fallen  back  to 
their  old  prices. 

Some  sales  were  made  at  Baltimore  during  the  present  week  at 
seven  dollars — the  real  price  here  this  day  does  not  exceed  six  and  a 
half — and  probably  is  less.  Niles'  Weekly  Register,  Vol.  XXI, 
Nov.  10,  1821,  p.  161. 

FLOUR  AND  GRAIN.  There  has  been  much  fluctuation  in  the 
price  of  these  articles  durmsTthe  present  week.  The  "  best  Howard 
street  flour"  had  fallen  Imck  to  $7.75,  and  was  dull — but  on  the 
arrival  of  accounts  from  England  to  the  llth  October,  advanced  to 
$8.75  and  $9.25,  by  the  quantity.  Wheat,  on  Monday  last,  was 
sold  at  from  1.85  to  2  dollars — old  corn  at  61  cents,  new  50  to  55. 

The  British  accounts  are  not  to  be  relied  on.  Without  enter- 
taining any  disposition  to  deceive,  ardent  speculators  (as  well  in 
commerce  as  in  politics),  deceive  themselves  and  mislead  others. 
Whether  the  crop  in  England  and  on  the  continent,  is  really  much 
short,  we  think  cannot  yet  be  fully  ascertained.  Old  wheat  was 
selling  at  Liverpool  from  11  to  11s.  6d.  per  70  Ibs. — equal  to  about 
9s.  6d.  per  American  bushel  of  60  Ibs.,  and  American  flour  at  50s. 
per  bbl.  duty  paid,  which  latter,  at  the  then  fixed  average  price  of 
grain,  was  14  shillings — say  36  shillings,  equal  to  8  dollars  per  barrel 
for  the  flour.  It  is  a  subject  about  which  we  do  not  often  venture 
our  advice,  but  we  think  that  if  the  farmers  can  obtain  two  dollars  a 
bushel  for  their  wrheat,  they  ought  to  sell  every  grain  that  they  in- 
tend to  spare. 

There  has  been  much  bustle  in  the  flour  market  in  Baltimore — 
the  streets  seem  as  if  filled  with  wagons  and  drays  loaded  with  it 
and,  no  doubt,  the  same  parcels  have  rapidly  passed  through  many 
different  hands.  A  large  quantity,  however,  has  been  sent  away — 
chieflv  coastwise. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       140 

The  following  extract  of  a  letter  from  Liverpool,  dated  October  7, 
is  important  just  now— 

"There  has  been  recently  considerable  speculation  in  the  grain 
market — but,  whether  the  opinions  now  getting  into  operation  are 
founded  correctly,  will  require  some  time  to  decide — in  the  mean- 
time, I  hope  the  fanners  of  the  middle  states  will  be  getting  clear 
of  their  superfluous  stock  at  a  good  price. 

"The  crop  of  potatoes  in  Ireland  has  been  uncommonly  abundant, 
more  so  than  for  some  years,  which  will  leave  the  whole  of  the 
wheat  crop  applicable  to  this  country — and  the  supply  from  that 
quarter  is  immense — What  designing  speculators  can  accomplish 
on  public  opinion,  has  been  tested  in  1825,  and  has  shown  the  little 
dependence  that  can  be  placed  on  estimates  of  interested  parties — 
and  if  the  fears  now  prevailing  of  deficiency  be  just,  the  government 
has  exhibited  a  gross  ignorance  of,  and  inattention  to,  the  true  state 
of  the  country;  in  not  earlier  providing  for  so  important  an  ex- 
igency." 

The  London  Free  Press  says — "Bread  is  daily  advancing  and  the 
present  prospect  is  that  it  will  advance  to  a  price  far  beyond  the 
reach  of  the  mass  of  the  community" — that  "the  French  are  buying 
up  corn  everywhere  on  the  continent" — that  of  "the  state  of  the 
manufacturers  we  have  most  disastrous  tidings" — that  "money  is 
abundant  in  the  hands  of  a  few,"  but  becoming  excessively  scarce 
"with  the  middling  classes" — that  Ireland  is  in  an  alarming  condi- 
tion, "  the  violence  of  the  Orangemen  exceeding  that  of  the  Catholic 
leaders;"  but  these  things  being  mixed  with  complaints  against  the 
government,  induces  us  to  suppose  that  they  may  be  exaggerated. 
It  is  certain,  however,  that  there  has  been  a  considerable  rise  in  the 
price  of  grain — that  Ireland  is  greatly  disturbed,  and  that  many  are 
asking  themselves  the  question,  What's  next? 

Since  the  preceding  was  in  type,  we  have  received,  by  way  of 
New  York,  extracts  from  English  papers  of  the  18th  October. 
The  importations  of  flour  and  grain  had  been  heavy — the  price  had 
considerably  declined,  and  was  yet  falling,  and  large  quantities  were 
shipping  for  the  north  of  Spain,  etc.  And  so,  we  fear,  endeth  this  nine 


150      SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

hundred  and  ninety-ninth  British  bubble,  extending  itself  into  the  very 
interior  of  our  country  and  injuring  many  innocent  persons.  Further 
advices,  however,  should  be  waited  for  to  determine  the  real  state  of 
things.  As  speculation  puffed-up  the  price,  so  speculation  may 
have  effect  to  reduce  it,  too  suddenly — or  to  too  great  an  extent. 
Niks'  Weekly  Register,  Vol.  XXXV,  Nov.  22,  1828,  p.  193. 

These  quotations  show  how  easy  it  was  for  speculators  to 
manipulate  the  market,  and  exploit  the  lack  of  market  in- 
formation generally  prevailing. 

The  theory  of  organized  speculation  is  that  such  market 
manipulation  is  made  increasingly  more  difficult,  with  the 
better  dissemination  of  market  news,  and  the  better  enforce- 
ment of  rules  against  manipulations  and  corners. 

The  Omaha  Grain  Exchange  was  opened  February  1, 
1904.  It  is  a  significant  fact  that  certain  strong  interests  in 
that  market,  fighting  farmers'  elevators  and  other  so-called 
"irregular"  country  houses,  were  opposed  to  opening  an 
organized  exchange  in  Omaha.  For  an  organized  exchange 
meant  certain  definite  rules,  adopted  by  the  majority.  The 
organized  exchange  meant  protection  to  the  country  shipper. 

The  tobacco  crop  represents  a  staple  agricultural  commod- 
ity, in  which  there  is  no  organized  exchange,  no  "future 
trading"  on  any  organized  exchange.  The  question  may  be 
asked,  is  this  market  harder  to  corner,  harder  to  manipulate, 
than  the  wheat  market  where  the  speculators  stand  face  to 
face  in  the  pit  and  shout  their  bids  and  offers  at  one  another? 

That  all  is  not  well  with  the  tobacco  market  is  a  matter 
of  common  observation.  The  situation  is  made  somewhere 
concrete  for  us  in  the  following  testimony  of  two  planters, 
before  a  Committee  of  the  United  States  Senate. 

F.  G.  Ewing. — "It  has  been  the  custom  for  the  past  four 
years  for  one  buyer  to  come  to  a  barn  and  make  one  bid  on 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION      151 

that  tobacco,  and  generally  speaking,  he  does  not  come  any 
more.  He  comes  and  says,  'I  will  give  you  4  1/2  cents/  or 
M  will  give  you  three  and  one/  or  c  I  will  give  you  something 
else; '  and  it  is  that  or  nothing.  Most  frequently  he  will  not 
have  another  opportunity  of  selling." 

Charles  H.  Fort. — The  buyer,  "came  to  my  house  and 
made  me  an  offer  for  my  tobacco,  and  I  knew  that  I  had  to 
sell,  for  there  was  no  other  way  in  the  world  to  sell  it,  no 
other  recourse,  and  I  sold  it  to  him.  He  was  on  his  way  to 
one  of  my  neighbors.  We  had  telephones  in  the  house  and  I 
telephoned  to  my  neighbor  before  this  buyer  got  to  his  house, 
and  told  him  that  he  had  better  take  the  first  offer;  that 
unless  he  did,  he  would  knock  him  down.  The  neighbor 
could  not  take  the  offer  that  day,  because  his  share  hands 
and  tenants  were  not  convenient,  and  he  could  not  take  the 
liberty  of  selling  their  tobacco  without  their  consent  and 
authority.  So  the  buyer  said  to  him,  'You  had  better  take 
this  offer;  when  I  come  to-morrow  I  will  give  you  less.'  In 
two  days  from  that  time  this  neighbor  went  to  accept  the 
former  proposition  and  he  knocked  him  down  a  hundred 
dollars  on  a  $600  crop;  and,  gentlemen,  he  kept  going  lower 
and  lower  until  he  got  $250  below  the  first  offer."* 

To  come  back  to  the  original  question,  What  is  the  rela- 
tion of  the  Chicago  Board  of  Trade  to  corners?  The  Board 
furnishes  machinery,  the  abuse  of  which  promotes  corners. 
The  history  of  the  Board,  however,  shows  that  the  Board  has 
the  machinery  for  controlling  corners,  so  far  as  the  Chicago 
market  is  concerned;  and  that  in  recent  years  the  Board  has 
exercised  this  power.  In  short,  the  Board  lessens  corners  by 
its  machinery  of  control. 

*  Hearings  before  subcommittee  of  the  Finance  Committee,  U.  S. 
Senate.  59  Cong.  2  Sess.,  Senate  Doc.  No.  372,  pp.  54,  117. 


152   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

(f)  Manipulation. — The  subject  of  manipulation  has  al- 
ready received  considerable  attention  in  connection  with 
the  discussion  of  corners.  Webster  defines  manipulation  in 
these  words:  " Manipulate — to  work  up  and  down  in  price 
by  transactions  other  than  those  made  bona  fide  or  in  the 
ordinary  course  of  business,  as  by  cash  sales,  cornering  the 
market,  spreading  fictitious  reports,  etc.,  to  rig. " 

To  "rig  the  market"  is  defined  as  to  "manipulate  the 
market. " 

The  underlying  idea  of  manipulation  is  the  deliberate  and 
conscious  influencing  of  price  through  dissimulation.  A 
vigorous  campaign  of  advertising  may  bear  or  bull  a  stock  or 
a  grain.  Is  this  advertising  manipulation?  Not  so  long  as 
it  is  free  from  deception  and  fraud.  There  must  be  some 
deceit.  Influencing  the  grain  market  by  spreading  false 
crop  reports  (easily  done  fifty  years  ago)  is  manipulation, 
and  is  of  course  forbidden  by  Board  of  Trade  rules.  In- 
fluencing the  grain  market  by  spreading  true  reports  of  crop 
damage  is  not  manipulation. 

The  following  instance  of  "influencing  price"  is  submitted 
to  the  reader's  judgment,  and  left  for  him  to  decide  whether 
or  not  it  constitutes  manipulation. 

The  following  telegram  was  sent  by  the  Illinois  Agricul- 
tural Association  on  September  15,  1919,  to  every  one  of  the 
county  agricultural  agents  in  Illinois,  to  be  passed  on  by 
them  to  the  50,000  farmers  constituting  the  membership  in 
the  State  Association;  the  telegram  was  given  a  prominent 
place  on  the  front  page  of  Chicago's  leading  morning  paper, 
so  that  when  the  Board  of  Trade  opened  at  9 :30  every  trader 
was  familiar  with  its  contents.  It  had  likewise  been  wired  to 
New  York,  Minneapolis,  Kansas  City,  and  other  market 
centers,  so  that  the  whole  trade  were  subject  to  its  influence. 


THE    CHICAGO    BOAKD    OF   TKADE    AND    SPECULATION      153 

(Copy) 

Chicago,  Illinois,  Sept.  15,  1919. 
Wm.  G.  Eckhardt, 
De  Kalb,  Illinois. 

Manipulation  grain  market  by  Board  of  Trade  and  agitation  by 
government  against  high  cost  of  living  temporarily  unsettling  mar- 
ket. Suggest  you  notify  entire  membership  your  county  not  to  be 
stampeded  but  hold  grain  awaiting  sane  market.  In  so  far  as 
possible  this  should  apply  to  live  stock. 

(Signed)  H.  J.  Sconce,  President, 
D.  0.  Thompson,  Secretary, 
Illinois  Agricultural  Ass'n. 

The  occasion  of  this  message  was  the  decline  in  the  price 
of  corn,  the  decline  extending  over  a  period  of  more  than  a 
month.  This  decline  in  corn  price  came  at  the  time  of  simi- 
lar declines  in  the  price  of  hogs  and  cattle  but  not  in  clothing 
and  machinery.  Hence  the  farmers  felt  that  they  were 
getting  unfair  treatment  from  somebody.  This  decline  oc- 
curred simultaneously  with  the  inauguration  of  a  tremendous 
national  and  state  campaign  against  the  "High  Cost  of 
Living/'  and  of  the  beginnings  of  a  government  suit  against 
the  "Big  Five"  packers,  and  of  widespread  labor  disorders 
and  strikes. 

The  effect  of  these  telegrams  was  to  put  up  the  price  of 
corn  futures  sharply — for  the  first  hour  or  two  of  trading — 
the  advance  being  8  1/2  cents  on  September  delivery,  and 
about  3  1/2  cents  for  December  and  May  deliveries.  By 
noon,  the  flood  of  buying  orders  from  New  York,  other  cities, 
and  the  country  trade  had  spent  itself,  and  the  price  settled 
back  to  about  the  closing  level  of  the  day  before.  The  bulk 
of  corn  futures  (at  this  date)  fell  in  the  December  and  May 
deliveries. 


154      SPECULATION   AND    THE    CHICAGO    BOAKD    OF   TRADS 

The  interpretation  put  by  press  reporters  on  the  market 
significance  of  this  telegram  was  reflected  in  their  daily 
market  reports.  Since  they  are  disinterested  parties,  their 
views  on  this  highly  important  matter  are  worth  quoting: 


(From  the  Chicago  Daily  News,  Sept.  17,  1919) 
GRAIN  VALUES  CLOSE   NEAR  THE  LOW  POINT 

Militant  Attitude  of  Labor  Leaders  in  Regard  to  Steel  Strike  a 

Factor 

Corn  market  showed  further  strength,  with  the  September 
leading  the  upturn.  The  campaign  of  the  Illinois  Agricultural 
association  among  farmers  advising  them  to  hold  their  grain  as 
well  as  the  buying  by  cash  interests  who  were  removing  hedges  on 
cash  corn  sold  to  go  east  overnight  were  responsible  for  the  big 
upward  swing  in  the  current  month.  Reports  that  the  gulf  storm 
had  caused  loss  to  the  Texas  corn  crop  was  a  factor  in  the  late 
months  and  this  together  with  the  strength  in  the  September  caused 
shorts  to  cover  and  some  investment  buying,  while  selling  pressure 
was  light,  the  upturn  in  the  current  month  holding  bearish  senti- 
ment in  check  and  restraining  bears  from  replacing  short  lines 
recently  covered.  Commission  houses  who  were  conspicuous  buy- 
ers around  the  low  point  were  active  sellers  on  the  bulge.  New 
England  points  accepted  all  offers  of  cash  corn  made  to  them  over- 
night and  sales  for  shipment  reported  early  totaled  165,000  bu. 
Country  offerings  of  com  to  arrive  were  just  fair  and  to-day's  re- 
ceipts are  estimated  at  185  cars.  Cash  corn  premiums  were  lower; 
No.  1  yellow  sold  early  at  l^c  over  September  but  later  Ic  pre- 
mium was  the  best  bid  obtainable.  Weather  is  generally  favorable 
for  the  crop,  which  is  practically  made,  according  to  the  weekly 
weather  and  crop  report  issued  by  the  weather  bureau. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       155 

(From  the  Chicago  Tribune,  September  18,  1919) 
STEEL  STRIKE  THREAT  BRINGS  GRAIN  BREAK 
Finish  is  Well  Toward  the  Low  Point;  Oat  Bulls  are  Hit 

By  CHARLES  D.  MICHAELS 

Between  the  attitude  of  the  farmers,  who  have  been  advised  to 
hold  their  grains,  and  prospects  of  serious  labor  troubles  in  the  steel 
trade  which  will  indirectly  affect  other  lines  of  business,  the  grain 
traders  were  kept  busy.  An  early  bulge  which  carried  prices  up 
sharply  was  due  to  the  former,  and  the  break  at  the  close  to  the 
latter  influence.  The  finish  was  well  toward  the  low  point,  with 
September  corn  4^c  higher  and  distant  futures  1  at  !7/sC  lower, 
December  leading,  while  oats  lost  !5/s  at  l^c,  and  rye,  1  at  13^c, 
despite  the  claims  of  500,000  bu.  sold  for  export  and  removal  of 
hedges  here. 

Outside  markets  were  irregular.  September  corn  in  Kansas  City 
closed  53/8c  higher,  while  other  months  were  !3/8  to  l%c  lower. 
St.  Louis  lost  1%  to  !7/8c.  Oats  in  the  southwest  were  5/s  to  !7/sC 
lower,  and  Minneapolis  1^  to  l^c  lower,  while  Winnipeg  gained  Ic 
on  October  and  lost  ^  to  5/8c  on  the  deferred  futures.  Receipts 
80  cars. 

Corn  Bulges,  Then  Breaks 

Heavy  and  general  covering  by  shorts  on  the  advice  given  to 
fanners  to  hold  their  grains  for  higher  prices  swept  values  up  sharply 
during  the  early  trading  in  corn,  September  jumping  8>^c,  and  the 
deferred  deliveries  35/8  to  3^c  over  the  previous  day's  close,  Septem- 
ber touching  $1.49,  or  18^c  above  the  low  on  Monday. 

A  break  in  foreign  exchange  to  a  new  low  level  was  ignored  as 
local,  and  commission  house  shorts  scrambled  for  the  free  offerings 
from  many  of  the  strong  operators  and  other  commission  houses 
who  bought  on  the  recent  break.  Trade  was  enormous  at  times, 
but  setbacks  were  of  minor  importance  until  around  noon,  when 


156   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

the  selling  against  offers,  as  well  as  the  general  profit  taking,  checked 
the  demand.  Fears  of  damage  to  the  Texas  crop  by  the  recent 
gulf  storm  and  of  an  excellent  eastern  demand  for  cash  grain  were 
factors  in  inducing  short  covering. 

The  market  plainly  showed  the  effect  of  the  profit  taking  when 
some  of  the  early  buyers  started  to  sell.  The  pit  element  were 
caught  long  and  all  tried  to  unload  at  once,  a  drop  of  5l/s  to  5}^c 
following,  with  support  limited  all  the  way  down,  the  close  being  at 
the  bottom,  with  December  $1.21^  and  May  $1.19%.  Cash 
houses  sold  September  on  the  bulge  and  it  closed  to  $1.443/2,  show- 
ing more  strength  than  the  distant  deliveries. 

Sample  values  were  7  to  9c  higher  early,  but  lost  4  to  5c  before 
the  close.  Shipping  sales  aggregated  310,000  bu.,  including  a  fair 
quantity  of  new.  Receipts  161  cars.  Country  offerings  were 
small. 

Continuing  this  discussion  of  the  farmers'  telegram  in  the 
Chicago  Tribune  for  September  19,  the  market  reporter 
wrote  as  follows: 

"The  attitude  of  the  farmers  in  holding  back  their  corn 
and  light  offerings  of  cash  grains  on  the  whole  are  influences 
which,  coming  after  the  big  break,  cause  careful  operators  to 
go  slower  on  the  selling  side.  Liquidation  has  been  drastic 
and  an  increase  in  the  buying  power,  which  some  commis- 
sion houses  claimed  to  have  yesterday  from  the  west,  in- 
duced them  to  be  cautious  in  advising  short  sales.  Others 
thought  that  on  any  further  advance  short  sales  should  be 
made. " 

"'If  the  position  of  the  farmer  is  right  in  holding  his 
corn  he  will  win  out,  but  if  not  he  will  have  to  take  his  loss,' 
said  a  corn  specialist.  A  country  elevator  man  here  yester- 
day said  the  holders  in  many  instances  will  either  get  more 
for  their  corn  in  the  near  future,  or  sell  for  much  less  later. 


THE    CHICAGO    BOARD    OF   TRADE    AND    SPECULATION      157 

He  offered  this  as  an  explanation  of  their  attitude."     (In 
Appendix  10  are  given  cash  corn  prices  for  this  whole  period.) 

When  it  is  remembered  how  large  the  membership  of  the 
Board  of  Trade  is  and  how  many  tens  of  thousands  of  cus- 
tomers trade  through  these  members,  it  is  obvious  how  diffi- 
cult collusion  among  a  large  share  of  these  members  is  for 
purposes  of  manipulating  the  market.  It  is  also  apparent 
that  so  many  widely  scattered  traders — some  near  and  some 
far — all  watching  the  markets,  are  difficult  to  stampede  with 
market  news,  reports,  rumors,  etc.  And  at  the  large  termi- 
nal markets,  where  continuous  market  quotations  are  re- 
ceived, there  are  always  a  number  of  powerful  bulls  and 
bears,  ready  to  put  on  the  brake  should  any  sudden  bulge  or 
break  impend  in  the  Chicago  pit. 

One  proper  function  of  an  organized  market  is  to  protect 
that  market  against  manipulations,  as  well  as  against  cor- 
ners, as  a  matter  of  self-protection.  The  unorganized  market 
is  easier  to  manipulate  than  the  organized.  Organization, 
high  standards  of  membership,  strict  rules  of  commercial 
conduct,  all  tend  to  lessen  manipulation. 

(g)  Increasing  Use  of  Future  Trading. — The  making  of 
forward  contracts  is  an  old  business  custom  in  many  lines. 
Short  selling,  so-called,  has  come  into  common  use  in  more 
recent  years. 

In  the  flour  and  grain  trade  in  the  earlier  days  of  our 
country,  merchants  often  made  contracts  for  future  delivery 
involving  a  short  sale.  The  following  case  illustrates  this 
usage  in  1836: 

Flour — forward  contracts — short  sales. 

The  New  York  Express  of  Monday  says,  "It  will  be  seen  by  the 
report  of  the  market,  that  flour  has  advanced  considerably  up  to 


158      SPECULATION    AND    THE    CHICAGO    BOARD    OF    TRADE 

the  close  of  Friday's  market.  What  western  there  was  in  market 
Saturday  has  been  sold  at  $8.373^  to  8.50.  On  the  20th  western 
flour  sold  at  $7.37^ — to-day,  the  same  brand  at  $8.50.  We  learn 
that  a  house  which  contracted  to  deliver  about  this  time  2,000  bbls. 
at  $7.373/2  is  now  buying  at  $8.50  to  $8.62  to  complete  the  con- 
tract. No  new  wheat  had  been  received  at  the  western  mills  at  last 
advices."  Niks'  Register,  Vol.  LI,  p.  16.  Sept.  3,  1836. 

One  of  the  greatest  users  of  the  future  contract  is  the 
federal  government  itself.  In  buying  supplies  for  the  Quar- 
termaster Department  of  the  army,  in  dealing  with  labor, 
and  in  many  other  ways,  the  matter  is  covered  by  a  definite 
contract,  the  contract  for  one  year  being  a  common  form. 

Apples. — In  the  fruit  industry,  particularly  apple  grow- 
ing, buyers  appear  in  the  orchards  early  in  the  summer  and 
sign  contracts  with  the  growers  for  the  delivery  of  the  crop. 
Thus  in  the  spring  of  1919,  a  local  firm  of  Wenatchee  (Wash- 
ington) apple  dealers  made  contracts  with  orchard  owners  to 
take  the  crop  of  Jonathans  and  King  Davids  at  $2  a  box. 
The  New  York  Packer  (May  10,  1919)  reports  the  following 
situation  in  Oregon: 

Portland,  Oregon,  May  9. — The  recent  taking  of  an  option  on 
the  coming  crop  of  one  big  apple  grower  at  Hood  River  even  before 
the  trees  were  fully  blossomed,  caused  considerable  interest  in  the 
trade.  The  option  was  taken  as  told  in  the  Packer  at  $1.50  for 
C  grade,  $1.75  for  fancy  and  $2.00  for  extra  fancy,  but  the  first 
report  indicated  the  payment  of  a  liberal  sum  down.  This  was 
later  found  to  be  merely  $1.00.  Now  the  parties  who  first  took  the 
option  claim  they  have  resold  it  to  a  Spokane  firm  acting  for  London 
parties,  a  profit  of  $1,000  being  taken  before  the  trees  are*  through 
blossoming.  Later  reports  indicate  that  the  same  English  buyers 
were  offering  a  similar  price  for  additional  contracts  on  Spitzenbergs 
and  Yellow  Newtowns  and  had  written  several  of  these.  At  the 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION      159 

closing  of  the  week  business  in  contracts  was  impossible  because 
growers  were  refusing  to  tie  up  their  expected  yields. 

Mr.  Robert  C.  Paulus,  Manager  and  Sales  Manager  of  the 
Salem  Fruit  Union,  Salem,  Oregon,  addressed  the  Four- 
teenth Annual  Meeting  of  the  Washington  State  Horti- 
cultural Association,  January,  1918,  and  following  his  ad- 
dress this  discussion  took  place,  on  the  subject  of  forward 
contracts: 

Mr.  Dean. — "Is  it  the  plan  of  the  company  (fruit  cannery)  to 
contract  for  a  period  of  years  from  the  farmers?" 

Mr.  Paulus. — "They  won't  go  into  a  community  unless  they  can 
get  five,  six,  eight  or  ten  year  contracts.  Any  factory  that  goes 
into  a  community  on  the  basis  of  one  year's  run  either  figures  on 
making  a  big  stake  of  that  one  year's  run,  or  else  within  a  year  or 
two  they  will  go  broke,  because  conditions  will  arise  which  some 
year  will  cause  them  to  go  without  fruit  if  they  haven't  it  con- 
tracted for  in  advance." 

The  following  quotation  is  from  the  Grain  Grower's 
Guide  of  Winnipeg,  for  October  1,  1919.  This  paper  is 
the  official  organ  of  the  Manitoba  Grain  Growers'  Associa- 
tion, the  Saskatchewan  Grain  Growers'  Association,  and  the 
United  Farmers  of  Alberta.  The  quotation  is  as  follows: 

Apples.  Three  hundred  thousand  dollars  worth  of  apples.  No, 
that  is  not  the  value  of  all  apples  used  in  Western  Canada  during  a 
year.  It  is  simply  the  value  of  the  apples  handled  by  United  Grain 
Growers  last  year  for  distribution  among  western  farmers.  It 
shows  the  western  farmer  is  fond  of  apples.  It  shows  too,  that  he 
has  discovered  a  good  system  of  getting  them  for  himself  through  his 
company. 


160       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

This  is  how  it  works.  During  the  year  the  company  watches 
the  fruit  market  closely,  and  the  progress  of  the  crops  in  the  three 
districts  that  supply  Western  Canada,  which  are  Ontario,  Wash- 
ington, and  British  Columbia. 

During  the  growing  season  these  districts  are  visited  and  dis- 
cussions held  on  the  ground  with  the  dealers  in  apples.  It  may  take 
several  visits  before  the  company  determines  where  the  best  apples 
are  to  be  had  at  the  lowest  price.  Finally  a  contract  is  made  for 
the  estimated  number  of  cars  required,  shipment  to  begin  as  soon 
as  the  apples  are  picked  and  packed.  Sometimes  part  of  a  seasons' 
requirements  are  purchased  in  one  district  and  part  in  another. 

California  Walnuts. — The  California  Walnut  Growers' 
Association,  in  its  report  of  April  30,  1918,  describes  in  the 
following  terms  its  manner  of  making  forward  contracts  and 
of  correlating  its  cost-of-production  price  to  supply-and-de- 
mand  price. 

The  selling  end  of  the  California  Walnut  Growers'  Association  is 
at  present  operated  as  follows:  Usually  in  January  the  Board  of 
Directors  authorizes  practically  one-half  of  the  Association's 
estimated  output  to  be  sold  for  delivery  during  the  coming  fall  on 
contracts  which  are  non-cancellable.  .  .  .  Usually  during  the 
month  of  June  the  directors  of  the  Association,  after  having  a 
thorough  and  careful  estimate  of  the  growing  crop  made,  again 
authorize  the  sale  for  fall  delivery  of  whatever  surplus  of  walnuts  it  is 
estimated  the  crop  will  produce  after  filling  the  firm  orders  taken  in 
January.  These  offerings  are  again  allotted  to  the  various  markets 
of  the  country,  depending  on  population,  etc.,  in  a  way  that  will 
insure  the  widest  and  most  thorough  distribution,  with  the  results 
that  by  the  time  the  crop  is  ready  for  shipment  the  Association's 
entire  estimated  holdings  of  all  grades  have  been  sold  for  ship- 
ment. .  .  . 

The  prices  of  the  various  grades  of  walnuts  produced  by  the 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       161 

California  growers  must  necessarily  ho  based  upon  the  laws  of 
supply  and  demand.  If  prices  are  set  so  high  as  to  prevent  normal 
consumption  a  carryover  must  necessarily  result,  which  always 
tends  to  demoralize  the  market  and  makes  necessary  a  material 
price  reduction.  In  order  to  move  an  entire  crop  valued  at  from 
five  to  seven  million  dollars  within  a  period  of  two  months,  and  to 
move  it  as  fast  as  the  goods  are  packed  and  ready  for  shipment  and 
ut  an  absolutely  uniform  price,  it  is  necessary  that  that  price  be  a 
trifle  under  what  is  absolutely  justified  by  the  laws  of  supply  and 
demand,  for  if  the  wholesale  purchaser  cannot  figure  on  a  slight 
advance  in  price  as  the  season  wears  on  he  will  purchase  only  his 
minimum  requirements  and  will  not  stock  up  with  several  months' 
supply,  but  will  purchase  lightly  at  first,  forcing  the  growers  to 
store  such  goods  as  are  not  necessary  for  immediate  consumption, 
and  the  wholesaler  will  buy  later  and  usually  at  a  lower  figure.  The 
method  now  pursued  in  determining  the  proper  prices  is  through 
advices  received  from  salaried  agents  that  the  Association  main- 
tains in  France  and  Italy,  the  principal  countries  producing  walnuts 
which  come  into  competition  with  the  California  line.  Advices  are 
constantly  received  through  these  agents  as  to  the  extent  of  the 
foreign  crops,  the  quality,  prices  being  paid,  whether  the  harvest  is 
early  or  late,  etc.  The  Association's  sales  department  then  gathers 
all  possible  information  regarding  the  consumer  demand  in  America. 
Accurate  estimates  of  both  domestic  and  foreign  walnuts  carried 
over  in  this  country  are  secured,  the  purchasing  power  of  the  nation 
considered,  then  a  careful  and  accurate  estimate  of  the  quantity  and 
quality  of  the  California  crop  is  made,  and  all  of  these  matters  laid 
before  the  Board  of  Directors  about  the  time  the  shipping  campaign 
opens.  The  directors  first  examine  and  crack  samples  of  walnuts 
gathered  from  practically  all  districts,  and  determine  the  average 
percentage  of  sound  merchantable  nuts  that  can  be  guaranteed  to 
the  purchaser  of  Diamond  Brand  goods.  They  then  consider  all 
factors  that  enter  into  the  value  of  the  product  and  name  prices  at 
which  the  Association's  various  grades  and  brands  of  walnuts  will 
be  offered  the  trade.  And  for  reasons  above  stated,  these  prices 


102      SPECULATIOX    AND    THE    CHICAGO    BOARD    OF    TRADE 

must  l)e  slightly  below  the  figure  justified  by  the  actual  supply  and 
demand  as  long  as  the  policy  of  selling  at  one  uniform  price  through- 
out the  entire  season  is  deemed  advisable. 

California  Prunes  and  Apricots. — The  California  Prune 
and  Apricot  Growers,  Incorporated,  have  a  practice  some- 
what similar  to  that  of  the  Walnut  Growers.  An  "Offering 
Price"  is  fixed  early  in  the  summer,  and  on  this  basis  for- 
ward contracts  entered  into  for  future  deliveries. 

The  Industries,  Steel,  Furniture,  etc. — The  public  is 
already  familiar  with  the  practice  of  many  of  the  large 
industrial  corporations  keeping  their  plants  running  "on 
orders. "  The  steel  industry  is  one  example  of  this,  the  bulk 
of  their  work  being  the  execution  of  orders  in  the  nature  of 
forward  contracts.  The  practice  of  the  furniture  trade  in 
this  matter  is  very  strikingly  set  forth  by  an  advertisement 
published  in  the  New  York  Tribune  of  July  23,  1919,  by 
Wanamaker's,  relative  to  the  annual  August  furniture  sale 
of  that  store: 

Copy  of  Advertisement 

Grand  Rapids,  as  most  people  know,  is  the  furniture  center  of  the 
United  States. 

Twice  a  year  350  of  the  leading  furniture  manufacturers  of  the 
country,  in  addition  to  about  40  local  makers,  exhibit  their  samples 
there  and  take  orders  for  six  months  ahead. 

This  year  the  Summer  exposition-and-sale  was  scheduled  to 
begin  June  23  and  continue  for  one  month. 

It  closed  practically  within  a  week.  As  a  matter  of  fact  most 
of  the  factories  were  oversold  the  first  day.  More  than  2,200 
retail  buyers  attended  the  sale.  The  highest  number  in  former 
years  was  about  1,700.  ...  On  all  exhibits  this  card  was  prom- 
inently displayed. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       163 

"  All  orders  accepted  at  current  prices  not  shipped  November  1 
will  he  shipped  at  the  prices  prevailing  at  time  of  shipment.  Orders 
unfilled  November  1  are  subject  to  cancellation  at  buyer's  option." 

Pure  Food  Products. — In  the  manufacture  of  preserved 
foods,  canned  food  products,  and  the  various  forms  of 
pickles,  jams,  jellies,  etc.,  it  is  customary  for  the  manufac- 
turer to  make  future  contracts  to  safeguard  the  source  of  his 
supply.  A  conspicuous  example  of  this  is  the  H.  J.  Heinz 
Company  of  Pittsburgh,  with  its  "57  varieties"  of  pure  food 
products.  It  is  the  practice  of  this  company  to  contract 
with  growers  for  certain  products  in  advance,  such  as  cu- 
cumber pickles,  cabbage,  tomatoes  and  cauliflower.  The 
Company's  fifty  years'  experience  has  demonstrated  the 
necessity  of  arranging  in  advance  for  a  definite  source  of 
supply  to  meet  its  business  requirements. 

Butter  and  Eggs. — The  Chicago  Mercantile  Exchange 
adopted  a  new  set  of  rules  during  the  year  1919,  and  on 
December  1  trading  in  futures  was  introduced  here  in  the 
butter  and  egg  trade. 

Beans. — The  bean  business  of  Manchuria  and  Corea 
has  reached  a  magnitude  comparable  with  the  grain  trade  in 
America.  It  is  now  a  custom  for  the  Japanese  buyers — the 
principal  buyers  there — to  make  forward  contracts  with 
interior  dealers.  American  importers  in  turn  make  forward 
contracts  with  exporters  in  the  Orient.  In  the  Bean  Bag 
magazine  for  December,  1919,  occurs  a  full  page  advertise- 
ment of  one  such  American  dealer  in  New  York  City,  stating, 
"We  are  now  booking  business  to  arrive." 

Large  Bakeries. — Companies  which  manufacture  baking 
products  generally  contract  well  in  advance  for  their  supply 
of  flour.  The  writer  recently  made  inquiry  of  several  of  the 


164     SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

largest  baking  firms  of  the  country  concerning  their  custom 
in  this  matter.    Some  typical  replies  are  quoted. 

Statements  by  Large  Bakers 

Maine. — "We  have  no  set  practice  for  purchasing  our 
requirements,  but  as  a  rule  we  would  usually  purchase  in  the 
latter  part  of  August  or  the  first  part  of  September  enough 
flour  to  last  us  well  into  the  spring,  depending  entirely  upon 
conditions.  If  we  made  such  a  purchase  of  flour  to  last  us 
say  from  the  first  part  of  September  until  the  first  part  of 
April  it  would  be  bought  on  the  condition  of  delivery  as 
wanted.  We  calculate  usually  to  have  deliveries  made  so 
that  we  would  have  at  least  thirty  days'  supply  of  flour  on 
hand.  We  have  also  purchased  flour  that  would  last  us  even 
longer  than  the  first  part  of  April  but  that  was  unusual,  as  we 
considered  by  the  first  of  April  the  Government  crop  re- 
ports for  the  coming  year  would  usually  have  more  or  less 
effect  on  the  price  of  flour. " 

Pennsylvania. — "We  use  approximately  2,000  barrels  of 
flour  monthly,  and  divide  this  among  two  or  three  mills  in 
quantity  to  carry  us  over  several  months,  and  by  this  method 
we  believe  we  get  a  slightly  better  price  on  our  flour. 
Our  observation  is  that  this  is  the  plan  of  buying  by  the 
bakers." 

Alabama. — "  I  understand  that  it  is  the  practice  with 
some  of  the  larger  bakers  throughout  the  country  to  hedge 
on  the  wheat  market,  personally  I  have  never  done  this,  but 
have  contracted  for  flour  at  a  stated  price,  covering  a  long 
period,  sometimes  as  long  as  one  year,  this  arrangement  has 
generally  proven  satisfactory. 

"During  the  last  four  or  five  years,  in  fact  since  the  be- 


THE    CHICAGO    BOARD    OF    TRADE    AXD    SPECULATION    165 

ginning  of  the  War,  millers  have  sold  for  not.  over  60  day 
shipments.  Of  course  during  a  great  part  of  that  time  the 
Food  Administration  did  not  permit  them  to  do  so,  nor  did 
it  permit  the  baker  to  carry  more  than  a  30  days'  supply  on 
hand. 

"  A  long  time  contract,  if  entered  into  between  parties  who 
show  the  proper  spirit  in  fulfilling  such  a  contract  is  gener- 
ally a  very  good  arrangement,  in  that  it  permits  the  miller  to 
run  his  mill  steadily,  and  permits  the  baker  to  figure  his  cost 
basis,  a  certain  price  for  his  flour. " 

Indiana. — "In  normal  times  it  is  the  custom  of  the  aver- 
age or  large  baker  to  contract  their  flour  several  months  in 
advance  and  some  of  the  bakers  have  contracted  their  flour 
for  an  entire  crop  year.  Of  course  this  has  not  been  permis- 
sible during  war  period;  if  this  custom  was  generally  carried 
on  I  would  think  it  would  enable  the  miller  to  sell  his  flour 
at  a  very  narrow  margin. " 

Grain  Futures  off  the  Exchanges. — Future  contracts  for 
grain  are  becoming  increasingly  common  outside  the  grain 
exchanges.  One  illustration  of  this  is  the  practice  by  many 
farmers'  cooperative  elevator  companies  of  using  a  written 
contract  with  their  patrons,  calling  for  the  delivery  of 
grain. 

Another  illustration  may  be  given  from  the  region  about 
Waco,  Texas.  In  this  vicinity,  where  the  best  red  rust  proof 
oats  are  grown,  it  is  the  custom  of  the  dealers  to  contract 
with  the  farmers  for  the  delivery  of  these  oats  of  No.  3  grade 
or  better,  these  contracts  being  entered  into  before  the  oats 
are  planted,  sometimes,  and  certainly  before  they  are  har- 
vested. The  dealers  then  in  turn  contract  to  deliver  these 
oats  to  buyers  in  the  East,  where  these  oats  are  largely  used 
for  seed  as  well  as  for  general  consumption  purposes.  In 


166      SPECULATION   AND   THE    CHICAGO    BOARD    OF   TRADE 

ordinary  years  there  is  no  difficulty  in  following  out  these 
contracts.* 

Use  of  Futures  to  give  Certainty  and  Stability. — The 
foregoing  discussion,  citing  as  it  does  but  a  few  common  uses 
of  futures,  illustrates  the  widespread  practice  among  busi- 
ness men  of  introducing  into  their  business  as  many  factors 
of  certainty  and  stability  as  possible,  and,  conversely,  of 
eliminating  from  their  business  as  many  risks  and  uncer- 
tainties as  possible.  The  future  contract  is  one  way  of  doing 
this.  But  the  future  contract  does  not  eliminate  the  risk, 
it  only  shifts  it.  Judging  by  past  experience,  it  seems  very 
probable  that  the  use  of  future  contracts  will  increase  rather 
then  decrease,  irrespective  of  any  action  the  grain  exchanges 
may  take. 

(h)  Hedging,  Insurance,  and  Speculation. — The  eco- 
nomic importance  of  insurance — of  shifting  or  distributing 
the  risk — is  sometimes  overlooked.  Formerly  there  was  but 
one  kind  of  insurance,  namely,  property  insurance.  Then 
appeared  life  insurance,  and  it  became  one  of  the  greatest 
protective  and  financial  institutions  of  modern  times.  The 
idea  of  insurance  has  grown  so  much  during  the  last  fifty 
years  that  its  ramifications  are  extended  almost  beyond  be- 
lief. Selecting  at  random  only  a  few  of  the  commoner  forms 
of  insurance  in  vogue  to-day,  and  we  have  a  list  like  this: 
fire  insurance,  life  insurance,  accident  insurance,  sickness 
insurance,  health  insurance,  marine  insurance,  lumber  in- 
surance, traveler's  insurance,  church  insurance,  plate  glass 
insurance,  landlord  insurance,  druggist  insurance,  physician 
insurance,  credit  insurance,  rents'  insurance,  profits  insur- 
ance, use  and  occupancy  insurance,  elevator  insurance, 
grain  elevator  insurance,  compensation  insurance,  fidelity 
*  Price  Current  Grain  Reporter,  July  23,  1919,  p.  7. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION    167 

insurance,  liability  insurance,  automobile  insurance,  col- 
lision insurance,  agricultural  insurance,  horse  insurance, 
hog  insurance,  livestock  insurance,  hail  insurance,  cyclone 
insurance,  windstorm  insurance,  sprinkler  leakage  insurance, 
exports  and  imports  insurance,  parcels  post  insurance, 
household  furniture  insurance,  merchandise  in  transit  in- 
surance, baggage  insurance,  dog  bite  insurance,  arsony  in- 
surance, burglary  insurance,  theft  insurance,  'robbery  insur- 
ance, riot  insurance,  fly  wheel  insurance,  explosion  insurance, 
boiler  insurance,  strike  insurance,  civil  commotion  insurance, 
bombardment  insurance,  floater  insurance  and  team  insur- 
ance. t 

It  is  not  surprising  that  in  the  grain  trade  there  should 
be  developed  that  form  of  insurance  technically  known  as 
hedging.  The  baker  hedges  by  contracting  for  flour.  The 
flour  mill  hedges  by  offsetting  its  flour  sale  contract  with  a 
wheat  purchase  contract  in  the  pit. 

Those  not  familiar  with  the  grain  trade  are  prone  to  look 
lightly  upon  hedging  as  a  mere  disembodied  theory,  and 
having  no  place  in  the  daily  handling  of  cash  wheat  or  coarse 
grains.  To  persons  of  this  kidney,  if  any  such  there  be,  it  is 
necessary  to  submit  concrete  evidence. 

Turn  to  the  great  wheat  region  of  our  North.  The  largest 
cooperative  association  of  farmers  in  the  grain  business  in 
that  section  of  the  United  States  is  known  as  the  Equity. 
This  association  operates  country  elevators  and  a  terminal 
elevator,  its  chief  function  being  to  receive  and  sell  consign- 
ments of  grain.  This  Association  has  issued  certain  text- 
books for  its  partons,  known  as  "  Grain  Growers7  Text  Book 
No.  1 "  and  "  Grain  Growers'  Text  Book  No.  2. "  The  follow- 
ing extended  quotation  is  from  book  No.  2,  mentioned  above, 
and  the  reader  is  asked  to  bear  in  mind,  when  reading  the 


168      SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

quotation,  that  the  word  " option"  is  wrongly  used  to  desig- 
nate "  future." 

Hedging. — From  Equity  Grain  Growers'  Text  Book  No.  2, 
pages  26-27. 

Wheat,  Durum,  Flax,  Rye  and  Oats  can  be  sold  to  arrive  on 
grades.  Barley  cannot,  as  a  rule,  be  sold  to  arrive  on  grade,  but 
sample  must  first  be  sent  in  and  sales  can  be  made  on  barley  on 
samples,  to  arrive;  but  usually  the  buyers  will  pay  a  little  more  for 
barley  when  the  car  has  arrived  at  the  terminal  than  they  will 
offer  on  sample.  On  straight  sales  to  arrive,  shippers  have  20  days 
in  which  to  deliver  the  grain.  You  can  sell  in  "broken  lots"  to 
arrive,  any  number  of  bushels,  say  500,  600,  700,  750  bushels  or 
more;  while  hedges  can  be  sold  only  in  even  thousand  bushel  lots,  as 
will  be  explained  later;  but  in  wiring  sales,  always  spell  out  the 
number  of  bushels  instead  of  using  figures,  to  guard  against  errors  in 
transmission. 

Watch  the  Market  Circulars,  and  C.  N.  D's  and  see  if  sales  to 
arrive  bring  the  same  price  as  for  grain  "on  track"  at  the  terminals, 
and  if  it  does,  selling  to  arrive  is  the  simplest  way  of  protecting  pur- 
chases at  country  elevators.  But  if  you  see  that  Wheat  or  Flax 
"on  track"  is  quoted  considerably  higher  than  "to  arrive,"  then 
you  cannot  afford  to  sell  to  arrive,  but  should  hedge  by  selling  an 
option  as  will  be  explained  in  the  following: 

By  "Hedging" 

is  meant  that  you  will  sell  an  option  either  September,  October, 
November,  December  or  May,  according  to  the  time  of  the  year. 
Wheat,  Durum,  Flax  and  Oats  Hedges  can  be  sold  in  even  thousand 
bushel  lots  of  1,000  bushels  and  up.  Rye  and  Barley  cannot  be 
hedged,  but  must  be  sold  to  arrive.  For  instance,  if  you  have 
bought  at  your  elevator  700,  800,  or  1,000  bushels  of  wheat  you 
wire  us  to  sell  a  thousand  bushels  December  of  May  Wheat.  When 
you  ship  that  wheat  you  write  on  the  advice  slip  an  instruction  to 
sell  the  actual  wheat  when  it  arrives  at  the  terminal  and  at  the  same 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       169 

time  buy  in  again  the  1,000  bushel  hedge  you  sold  for  protection. 
The  principle  of  this  hedging  system  is,  that,  if  the  wheat  goes  down 
in  price  while  you  have  it  in  the  elevator  or  in  transit,  the  option  also 
goes  down  with  it,  so  that  you  can  buy  it  back  again  so  much 
cheaper  and  thus  make  on  the  hedge  what  you  may  lose  on  the 
actual  wheat,  and  vice  versa.  If  the  wheat  advances  while  you  have 
it  in  the  house  or  in  transit,  the  actual  wheat  will  sell  so  much 
higher,  but  you  will  lose  about  the  same  amount  on  the  hedge,  by 
having  to  buy  it  in  at  so  much  higher  than  it  was  sold  for,  so  you 
cannot  make  anything  by  the  actual  hedging;  it  simply  protects 
you  from  losses  and  keeps  you  even  and  protects  your  margin  of 
profit.  For  that  reason,  this  hedging  is  not  speculation  at  all,  simply 
a  legitimate  business  proposition.  On  the  other  hand,  if  you  don't 
sell  to  arrive  or  hedge  your  bought  grain,  then  you  are  speculating 
on  it,  and  that  is  dangerous,  because  no  one  knows  what  the  market 
is  going  to  be  in  the  future. 

You  must  have  at  least  ^  cent  per  bushel  more  for  "on  track" 
grain  over  the  "to  arrive"  to  pay  for  commission  on  hedges,  revenue 
stamps,  etc.  Hedges  can  only  be  sold  upon  receipt  of  Bill  of  Lading 
or  receipt  of  check  for  10  cents  per  bushel  to  protect  us;  i.  e.,  1,000 
bushels  of  option  would  require  check  for  $100,  to  accompany. 

In  the  matter  of  sales  to  arrive,  we  can  accept  such  sales  only  from 
grain  dealers,  of  record.  We  cannot  accept  to  arrive  sales  from 
individuals  unless  10  cents  per  bushel  margin  accompanies  the 
order  or  upon  receipt  of  Bill  of  Lading  showing  that  grain  has  been 
loaded.  In  case  grain  goes  down  we  will  only  carry  hedges  to  the 
point  where  your  margin  ceases  or  as  close  to  this  as  possible.  The 
way  to  be  safe  is  to  have  plenty  of  margin  money  up.  All  balances 
on  margins  will  be  returned  as  soon  as  trade  is  closed.  We  can  carry 
any  kind  of  legitimate  hedge  but  we  do  not  accept  any  trade  for 
speculation. 

Stored  Grain  Protected 

As  long  as  you  have  the  stored  grain  in  the  house  or  in  transit 
(i.  e.,  grain  not  bought  by  the  house),  it  will  make  no  difference  to 


170      SPECULATION    AND    THE    CHICAGO    BOARD    OF   TRADE 

the  shipper  whether  prices  go  up  or  down,  as  far  as  the  stored  grain 
is  concerned.  The  stored  grain  should,  therefore,  not  be  sold  or 
hedged  until  it  is  disposed  of  at  the  terminals,  but  if  you  use  this 
hedging  system  and  sell  as  fast  as  you  buy,  whether  you  buy  it  from 
the  wagon  or  buy  up  storage  tickets,  wire  in  and  sell  hedges  for  all 
you  have  bought  every  day — especially  during  the  busy  season,  and 
as  fast  as  you  buy  close  to  1,009  bushels  during  the  slack  season, — 
and  if  you  order  us  to  buy  in  as  near  as  possible  hedges  to  offset  the 
number  of  bushels  in  every  car,  then  your  stored  grain  will  always 
be  protected,  even  if  you  ship  it  in  and  sell  it. 

Stored  gram  should  never  be  shipped  out  when  it  is  possible  to 
hold  it.  Sometimes,  however,  it  is  necessary  in  order  to  make  room 
and  for  other  causes.  When  stored  grain  is  kept  in  the  elevator  you 
take  no  chances  but  when  the  grain  is  shipped  out  and  the  option 
spreads  away  from  the  cash  grain  then  you  can  readily  see  that 
you  are  the  loser.  It  is  impossible  to  hold  all  stored  grain  in  the 
house  in  most  cases,  but  every  bushel  possible  should  be  held  to 
protect  your  storage  tickets.  Then  again,  it  is  illegal  in  North 
Dakota  to  ship  out  stored  grain  in  excess  of  the  amount  of  your 
bond.  Remember  that  we  can  handle  any  hedge  at  any  time  or  on 
any  market,  but  we  do  not  handle  speculative  trades. 

This  quotation  is  given  at  length  because  it  sets  forth  two 
cardinal  principles  in  the  successful  operation  of  country 
grain  elevators  in  the  Northwest,  namely,  that  hedging 
should  be  used  as  an  insurance  against  loss,  and  that  the 
manager  of  the  country  elevator  ought  not  to  speculate  in 
grain.  He  holds  a  position  of  trust,  and  the  temptation  to 
speculate  with  other  people's  money  or  other  people's  grain 
is  a  peculiarly  strong  one.  A  few  fall  before  this  temptation. 

The  largest  wheat  market  in  the  world  is  now  Winnipeg. 
And  the  largest  cooperative  organization  among  farmers  on 
the  North  American  Continent  is  the  organization  of  the 
wheat  growers  in  the  region  between  Winnipeg  and  the 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION    171 

Canadian  Rockies.  In  the  May,  1917,  crisis  in  the  wheat 
market,  when  future  trading  was  temporarily  suspended  at 
Winnipeg,  and  hedging  operations  were  in  consequence  out 
of  the  question,  the  farmers'  country  elevators  met  the  situa- 
tion by  the  safe  but  drastic  method  of  simply  stopping  all 
buying.  These  heroic  measures  met  the  war-time  emer- 
gency. Since  these  events  have  an  importance  of  the  first 
magnitude  in  the  history  of  the  grain  trade,  a  full  and  com- 
plete account  is  here  reprinted  from  the  official  paper  of  the 
Canadian  grain  growers.* 

WHY  WE  STOPPED  BUYING  AT  OUR  ELEVATORS 

Although  the  recent  crisis  in  the  Western  Canadian  grain  trade 
has  been  well  reported  in  the  newspapers,  it  is  reasonable  to  presume 
that  few,  outside  of  the  grain  trade  itself,  fully  understand  the  cir- 
cumstances that  culminated  in  such  an  unprecedented  happening  as 
the  general  stoppage  of  country  elevator  business. 

Buying  and  Selling  Wheat 

To  explain  the  matter  it  is  first  necessary  to  outline  the  methods 
used  by  country  elevator  companies  in  buying  and  selling  wheat. 
The  country  elevator  companies  obtain  large  loans  from  banks  to 
finance  the  buying  of  grain,  and  the  banks  insist  on  country  elevator 
companies  protecting  their  purchases  against  market  fluctuations  by 
hedging,  or,  in  other  words,  making  sales  for  future  delivery.  The 
banks  are  not  unreasonable  in  making  this  provision,  and  the 
elevator  companies  also  do  not  wish  to  speculate,  so  the  common 
practice  is  for  elevator  companies  to  sell  each  day,  on  the  Winnipeg 
market,  an  amount  of  futures  equal  to  their  total  daily  purchases 
of  all  grades  of  wheat.  When  the  wheat  so  hedged  arrives  at  the 
Lake  terminals,  it  is  sold  and  an  equivalent  amount  of  the  future 
bought  back  in  one  transaction.  On  the  other  hand,  exporters  or 

*  The  Saskatchewan  Co-operative  Elevator  News,  June,  1917,  pp.  7-9. 


172      SPECULATION   AND    THE    CHICAGO    BOARD    OF   THADE 

millers  wishing  to  assure  themselves  necessary  supplies  of  wheat  at 
certain  future  dates,  buy  futures  for  the  delivery  they  require,  and 
eventually  exchange  them  with  the  elevator  and  commission  com- 
panies for  the  actual  wheat.  Thus,  when  the  wheat  belonging  to  an 
elevator  company  arrives  at  Lake  terminals,  the  elevator  company 
sells  and  the  miller  or  exporter  buys  the  wheat,  also  the  elevator 
company  buys,  and  the  miller  or  exporter  sells  the  future  which 
each  has  respectively  sold  or  bought.  This  exchanging  of  the  cash 
wheat  and  future  forms  one  transaction;  the  wheat  passing  on  to  the 
consumer  and  the  future  being  automatically  eliminated. 

While  the  buyers  have  generally  been  willing  to  exchange  the 
future  contracts  for  wheat  of  almost  any  grade  it  should  be  noted 
here  that  the  present  rules  and  regulations  of  the  Winnipeg  Grain 
Exchange  provide  that  only  1,  2  and  3  Northern  wheat  are  de- 
liverable on  future  contracts  at  certain  spreads,  so  that  elevator 
companies  hedging  all  grades  of  wheat  by  selling  futures,  incur  a 
possible  risk  of  being  unable  at  times  to  get  back  from  the  buyer  of 
their  lower  grades  an  equivalent  amount  of  the  future  which  they 
have  previously  sold.  In  such  case  the  spot  wheat  of  low  grade 
would  have  to  be  sold  flat  and  the  future  bought  back  in  the  open 
market,  with  the  consequent  possibility  of  having  to  bid  up  the 
future  out  of  price  relation  to  the  sale  price  of  the  lower  grade.  This 
and  the  constant  fluctuation  of  spreads,  or  differences  in  value, 
between  the  lower  grades,  constitute  the  weak  points  of  the  practice 
of  hedging  all  grades  by  selling  futures.  As  an  illustration  of  these 
two  features  a  table  is  appended  of  the  spreads  of  each  grade  of 
wheat  under  the  current  future  delivery  value  on  certain  dates. 

The  constant  changings  of  spreads,  especially  on  the  lower  grades, 
is  very  noticeable  and  Feed  Wheat  almost  throughout  the  season 
has  been  sold  on  flat  bids. 

Buying  Stops 

Turning  now  to  the  real  theme  of  this  article,  it  is  well  known  that 
in  the  fall  of  1916  the  British  Roj^al  Wheat  Commission,  by  ap- 
pointing a  buying  agent  on  the  Winnipeg  market,  practically 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION      173 

eliminated  all  export  companies;  and  this  agent,  buying  for  the 
allied  governments,  together  with  the  few  Canadian  milling  com- 
panies then  became  almost  the  sole  buyers  of  wheat  on  the  Winnipeg 
market.  The  Royal  Wheat  Commission  made  extensive  purchases 
throughout  the  winter,  and  spring  found  them  with  tremendous 
holdings  of  May  and  July  delivery  contracts,  which  according  to  the 
rules  of  the  Winnipeg  Grain  Exchange  called  for  1,  2  or  3  Northern 
wheat  only.  It  was,  however,  presumed  that  the  Royal  Wheat 
Commission  would  accept  any  grades  of  milling  value,  even  if  lower 
than  3  Northern,  so  elevator  companies  anticipating  no  trouble  in 
disposing  of  lower  than  contract  grades  continued  the  usual  practice 
of  selling  futures  as  a  hedge  against  their  purchases  of  lower  grades 
than  3  Northern.  The  Royal  Wheat  Commission,  of  course, 
preferred  the  higher  grades  which  would  yield  most  flour  for  the 
bulk,  as  ocean  tonnage  was  scarce  and  space  a  great  consideration; 
hence,  the  Royal  Wheat  Commission  were  somewhat  reluctant  to 
accept  lower  grades.  Consequently,  abnormally  wide  spreads  pre- 
vailed this  season,  especially  on  Five  and  Six  wheat.  Feed  wheat 
they  would  not  accept  at  all,  which  explains  why  it  has  been  at  a 
flat  price  since  last  November.  As  the  1916  crop  was  of  low  average 
grade,  approximately  50  per  cent  of  the  Royal  Wheat  Commis- 
sion's holdings  of  May  and  July  delivery  contracts  would  have  to  be 
filled  with  lower  grades  than  3  Northern,  and  any  refusal  by  the 
Royal  Wheat  Commission  to  accept  such  lower  grades  would 
precipitate  a  most  serious  situation.  This  is  just  what  happened. 
On  May  2,  1917,  the  Winnipeg  agent  of  the  Royal  Wheat  Com- 
mission refused  to  accept  any  grades  except  1,  2  and  3  Northern,  and 
tough  1  and  2  Northern  on  May  contracts;  on  lower  grades  a  flat 
bid,  very  much  out  of  relation  to  the  May  delivery  value,  was 
offered.  Elevator  companies  were  thus  forced  to  sell  lower  grades 
flat  and  buy  back  their  hedge  (the  future  delivery  contract)  in  the 
open  market.  Panicky  buying  in  of  contracts  followed  and  the 
wildest  of  wild  markets  on  that  memorable  day  showed  a  33^  cent 
range  of  fluctuation.  On  May  3rd  May  delivery  touched  $3.05 
with  a  fluctuation  of  29^  cents.  Briefly,  the  Royal  Wheat  Com- 


174       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

mission  had  cornered  the  market,  but  not  for  profit  as  is  usual  with 
corners.  Their  purchases  were  for  actual  consumption  and  would 
not  be  resold. 

To  prevent  further  panic,  and  the  undue  inflation  of  values,  the 
Council  gf  the  Winnipeg  Grain  Exchange  prohibited  further  trading 
in  May  and  July  deliver  contracts.  This  deprived  the  elevator 
companies,  even  if  they  had  wished  to  continue  buying,  of  any 
means  of  hedging  country  purchases,  and  also  of  a  basis  for  arriving 
at  spreads  on  the  lower  grades.  Our  company  deemed  it  advisable 
to  stop  buying  until  matters  were  adjusted.  We  do  not  speculate 
and  consequently  refuse  to  have  anything  to  do  with  any  form  of 
speculation.  To  buy  wheat  at  our  elevators  during  a  time  when 
we  had  no  means  of  making  hedging  sales  would  have  meant  specu- 
lating with  whatever  we  purchased,  so  we  stopped  buying. 

Buying  Resumes 

After  a  few  days  of  inactivity  an  arrangement  was  arrived  at 
between  the  Royal  Wheat  Commission,  the  Canadian  millers  and 
the  elevator  companies,  whereby  the  May  and  July  delivery  con- 
tracts would  be  liquidated  and  business  for  the  balance  of  the  season 
taken  care  of  by  substituting  Basis  1  Northern  Contracts  on  which 
all  grades  of  wheat  down  to  and  including  No.  5  would  be  delivera- 
ble. Buying  was  at  once  resumed  in  the  country.  The  following 
spreads  were  agreed  upon  to  cover  deliveries  on  May  and  July 
delivery  contracts,  and  the  new  Basis  1  Northern  Contracts : 

Rej.  afc     Rej.  afc 

Straight     Dried     Tough      Seeds         Smut 
1  Northern...  .  Basis      -9         -10  -15          -15 


3  Northern  

No  4 

-8 
-20 

-9 
-21 

-20 
-40 

-  23          -  23 

Special  No.  4  
No.  5.  . 

-  20 
..-45 

-21 

-46 

-40 

Special  No.  5. -45         -46 

Note. — Tough  grades  are  not  deliverable  after  May  15,  1917. 


THE    CHICAGO    BOARD    OP    TRADE    AND    SPECULATION       175 

We  hold  no  brief  for  the  Winnipeg  Grain  Exchange,  but,  before 
concluding,  a  word  of  praise  must  be  extended  to  the  President  and 
Council  and  the  special  committee  who  brought  the  various  interests 
together.  The  aims  of  the  association  called  "  The  Winnipeg  Grain 
Exchange"  as  set  forth  in  its  constitution  are  in  part  as  follows: 

"  To  organize,  establish  and  maintain  an  association  not  for  pecu- 
niary profit  or  gain,  but  for  the  purpose  of  promoting  objects  and 
measures  for  the  advancement  of  trade  and  commerce  respecting  the 
grain,  produce  and  provision  trades  for  the  general  benefit  of  the 
Dominion  of  Canada  as  herein  provided." 

"To  inspire  confidence  and  stability  in  the  methods  and  workings 
and  integrity  of  its  members." 

The  members  of  the  Winnipeg  Grain  Exchange  responsible  for 
the  above  satisfactory  settlement  of  difficulties,  which  presented  so 
serious  an  aspect,  have  certainly  acted  in  accordance  with  the  high 
sentiment  as  expressed  in  the  terms  of  the  constitution. 

In  this  situation  as  outlined  in  Canada,  the  local  elevator 
had  two  alternatives:  (1)  stop  buying;  (2)  buy  at  a  wide 
enough  margin  to  feel  reasonably  well  protected.  A  similar 
situation  existed  for  a  few  days  on  the  American  side  of  the 
boundary  line,  and  in  the  crisis,  some  farmers'  elevators 
bought  wheat  on  a  margin  of  fifty  cents  a  bushel  in  order  to 
be  protected  against  market  changes.* 

The  speculative  nature  of  the  hay  trade  was  described  as  follows  in 
the  Nineteenth  Annual  Report  of  the  President  of  the  National  Hay 
Association  at  the  Kansas  City  Meeting  of  the  Association  in  1912: — 

"The  very  nature  of  hay,  its  large  bulk  when  loose  in  farmers'  barns 
or  baled  and  held  in  shippers'  or  dealers'  storage  sheds,  keeps  it  from 
being  bought  and  sold  as  grain  and  other  farm  products  are  on  the 
Chicago  Board  of  Trade  and  the  other  commercial  exchanges  of  like 
character  throughout  the  country.  Hence  every  man  that  handles  hay 
from  the  producer  to  the  consumer  speculates  largely  and  takes  great 
*  Speculation  and  the  Hay  Crop.  No  Hedging. 


176   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

chances  as  there  is  no  way  in  which  he  can  hedge  his  trades.  For  this 
reason  the  fluctuations  of  the  market  are  large  and  often  a  few  days 
will  show  a  variation  of  values  from  25  per  cent  to  50  per  cent.  No 
farm  product  grown  in  this  country  is  as  hazardous  to  deal  in  as  hay." 
—President  P.  E.  Goodrich,  p.  42. 

In  theory  and  in  practice,  hedging  enables  the  country 
elevator  to  do  business  on  a  smaller  margin,  just  as  the  flour 
miller,  by  contracting  his  flour  output  ahead  and  also  his 
wheat  requirements  on  the  future  market,  is  hedged  thereby, 
and  can  safely  work  on  a  very  close  margin.  A  conspicuous 
example  of  a  well-managed  farmers'  elevator  was  that  of  the 
Cooperative  Farmers'  Elevator  Company  of  Hartford,  South 
Dakota,  under  the  late  Mr.  Iver  S.  Henjum,  well  and  favor- 
ably known  to  the  grain  trade.  The  directors  of  this  com-* 
pany  issued  from  year  to  year  a  notice  covering  the  buying 
margins  on  grain.  While  this  margin  was  set  at  1  cent  a 
bushel  on  wheat  and  oats,  it  was  3  cents  on  barley,  the  bar- 
ley not  being  subject  to  hedging  by  future  trading. 

With  the  increased  use  of  hedging  in  recent  years,  coupled 
with  other  factors,  has  come  a  narrowing  of  the  margins 
on  which  country  grain  is  handled.  Thus  Mr.  Pillsbury,  the 
Minneapolis  miller,  testified  before  the  Committee  on  Agri- 
culture of  the  House  of  Representatives  that  he  formerly 
bought  cheaper  of  the  farmers  and  sold  dearer  to  the  con- 
sumers.* 

The  validity  of  hedging  as  insurance  may  be  accepted  as 
an  established  fact.  The  real  point  in  controversy  now  is, 
how  wide  a  future  market  is  needed  in  order  to  provide  ample 
hedging  facilities?  By  a  wide  market  is  meant  a  market 
with  enough  traders  participating  on  each  side  so  that  mil- 

*  Testimony  before  Committee  on  Agriculture,  House,  52d  Congress, 
1st  Sess.,  p.  193. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       177 

lions  of  bushels  of  grain  can  be  bought  or  sold,  at  any  mo- 
ment, without  bulling  or  bearing  the  market.  This  is  exactly 
the  condition  which  differentiates  the  Chicago  futures 
market  from  the  futures  markets  of  St.  Louis,  Kansas  City, 
Minneapolis  or  Winnipeg.  An  order  to  buy  a  million  bushels 
of  grain  in  the  Kansas  City  pit  would  raise  prices  there 
sharply.  The  same  order  would  have  little  immediate  effect 
on  the  Chicago  pit.  Hence  large  future  orders  arriving  at 
these  secondary  markets  are  first  placed  in  the  Chicago  pit, 
and  then  gradually  worked  back  into  the  secondary  market, 
a  fraction  at  a  time. 

The  difference  between  a  wide  and  a  narrow  market  is 
very  convincingly  illustrated  by  the  Winnipeg  market  when 
future  trading  was  resumed  there  in  July,  1919.  The  follow- 
ing quotation  describing  it,  is  from  the  Commercial  West 
(Minneapolis),  July  26,  1919,  page  49. 

WHEAT    TRADING    ON    THE    WINNIPEG    GRAIN    EX- 
CHANGE 

Winnipeg — After  suspension  for  two  years,  wheat  trading  was 
resumed  on  the  grain  exchange  here  July  21.  The  first  bid  was 
$2.10  for  October,  with  no  offers,  and  the  first  sale  was  made  at 
$2.20,  the  price  rising  to  $2.25  asked,  with  no  buyers.  But  5,000 
bushels  of  October  were  dealt  in  in  the  first  hour  of  trading.  The 
first  bid  for  December  was  $2.23,  with  no  sales. 

Dealers  are  inclined  to  be  cautious,  but  are  inclined  to  think  the 
market  is  going  higher,  and  are  waiting  for  the  government  to 
announce  the  minimum  figure,  which  it  is  expected  will  be  between 
$1.75  and  $2.  The  millers  are  not  in  the  market,  but  are  watching 
the  situation  closely. 

Here  is  a  market  without  speculators.  And  it  is  a  narrow 
market — so  narrow  that  it  could  offer  no  hedging  facilities. 


178      SPECULATION"    AXD    THE    CHICAGO    BOARD    OF    TRADE 

It  is  the  universal  and  unanimous  opinion  among  all  handlers 
of  cash  grain,  with  whom  the  writer  has  conferred  on  the  sub- 
ject, that  the  speculator  is  needed  to  make  a  wide  market, 
and  the  wide  market  is  needed  for  hedging,  and  hedging  is 
needed  for  keeping  the  costs  of  handling  down.  And  keeping 
the  costs  of  handling  down  is  desired  by  society. 

There  is  another  intensely  practical  aspect  of  the  matter. 
The  commission  house  through  whom  the  speculator  (if  a 
non-member)  must  trade  has  no  means  of  knowing  whether 
the  trade  be  a  hedge  or  a  speculation. 

Thus  a  Kansas  City  firm  received  an  order  from  Texas  to 
buy  two  hundred  thousand  bushels  of  September  oats.  The 
order  was  placed  (first  in  Chicago,  then  in  Kansas  City),  the 
house  thinking  it  was  a  speculative  trade.  But  the  trade 
stood  till  September,  and  the  cash  oats  were  delivered.  An 
Iowa  farmer  sometime  in  September  decides  that  his  corn 
crop  is  made;  that  the  December  price  in  Chicago  is  high 
enough  to  suit  him ;  and  that  anyway  prices  are  sure  to  trend 
downward.  To  take  advantage  of  the  machinery  provided 
by  the  Chicago  Board  of  Trade  for  situations  like  this,  he 
sells  10,000  bushels  of  December  corn  in  the  Chicago  pit. 
Now  he  can  wait  till  December  and  deliver  and  collect  the 
price.  Or,  he  rnay  change  his  mind  before  December  and 
decide  to  feed  hogs  and  market  his  corn  in  the  form  of  hogs. 
He  buys  back  his  December  future,  or  what  amounts  to  the 
same  thing,  settles  with  the  house  for  the  balance  due  him 
between  his  bought  and  his  sold  price.  The  house  does  not 
know  what  is  in  the  mind  of  the  trader:  and  if  it  did  the 
trader  may  change  his  mind.  Thus  it  is  that  hedging  is 
inextricably  interwoven  with  speculation. 

The  theory  is  sometimes  advanced  that  speculation  in 
grain  should  be  limited  to  men  in  the  grain  trade.  This 


THE  CHICAGO  BOARD  OF  TRADE  AND  SPECULATION   170 

would  not  work  out  well  in  practice,  for  there  is  a  large  class 
of  grain  men — in  fact  the  most  numerous  class  of  grain  men 
— namely,  managers  of  country  elevators  who  ought  not  to 
be  allowed  to  speculate  in  grain  at  all.  They  are  supposed  to 
use  hedging  to  avoid  speculation.  It  is  interesting  to  note, 
that  in  the  North  where  country  elevator  managers  are 
financed  by  terminal  commission  merchants,  they  are  re- 
quired to  hedge  and  do  hedge,  whereas  in  the  Middle  and 
South,  they  are  financed  locally  and  are  not  required  to 
hedge  and  many  do  not  hedge.  They  have,  accordingly, 
larger  speculative  losses  and  larger  speculative  gains — and 
also  do  business  on  a  larger  margin.  However,  there  seems 
to  be  an  increase  in  selling  to  arrive,  which  is  one  form  of 
hedging.  The  to  arrive  buyer  at  the  terminal  hedges  in  the 
pit,  and  thus  indirectly  the  country  shipper  is  hedged  in  the 
pit, 

(i)  Summary  of  Benefits  of  Organized  Speculation.— 
Assuming  the  right  of  a  free  American  citizen,  with  money 
and  brains  enough,  exercising  that  " pursuit  of  happiness" 
which  is  one  of  the  three  " inalienable  rights"  with  which 
his  Creator  endowed  him  (according  to  that  noble  and  im- 
mortal document  known  as  the  Declaration  of  Independ- 
ence), assuming,  I  say,  the  right  of  such  a  citizen  to  buy  and 
sell  freely  on  an  open  market,  then  a  citizen  has  a  right  to 
speculate,  so  long  as  he  is  not  injuring  society  thereby. 
Leaving  on  one  side  for  later  discussion  the  evils  of  specula- 
tion, we  may  very  briefly  summarize  the  recognized  benefits 
of  speculation  conducted  on  the  organized  exchanges  under 
the  rules  of  fair  play  there  in  force. 

Stabilize  prices. — Prices  are  stabilized  near  the  supply 
and  demand  level.  Wider  swings  of  the  market  are  greatly 
lessened  in  range.  In  place  of  the  wide  swings,  there  are 


180   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

many  minor  fluctuations  reflecting  very  sensitively  the  pres 
sure  of  changing  supply  and  demand. 

Registers  prices. — Speculation  does  not  fix  prices,  but 
registers  prices.  The  speculator — who  names  prices — is 
working  under  the  laws  of  supply  and  demand — or  he  ceases 
to  be  a  speculator  and  is  eliminated  from  the  market.  The 
law  of  the  survival  of  the  fittest  obtains  in  the  pit. 

Wide,  continuous  market. — Speculation  furnishes  a  wide 
and  a  continuous  market.  There  are  not  always  on  hand 
consumptive  buyers  ready  to  take  the  grair  at  the  full 
market  price — although  they  doubtless  would  at  a  discount. 
Here  is  where  the  speculator  steps  in,  and  makes  the  market. 

Assumption  of  Risk. — The  distribution  of  risk,  as  we  may 
term  the  assumption  of  risk,  is  a  factor  of  first  importance 
on  the  organized  exchanges.  That  large  class  of  persons 
who  do  not  want  to  bear  the  risk  of  price  fluctuations,  and 
ought  not  to  do  so,  can,  on  the  future  market,  shift  the  risk 
to  that  class  who  prefer  to  bear  the  risk.  It  is  well  to  bear  in 
mind  the  wider  swings  of  the  market  when  considering  the 
significance  of  this  service.  Over  any  series  of  years,  due  to 
lack  of  coordination  between  production  and  normal  con- 
sumptive demands,  there  occur  at  times  a  certain  marked 
downward  movements  of  price,  or  certain  long-continued 
upward  movements  of  price.  These  big  downward  swings 
would  wreck  the  large  flour  millers,  the  manufacturers,  the 
big  bakers  and  others  with  forward  contracts,  were  it  not 
possible  to  shift  risks  of  this  kind  to  the  traders  on  the  future 
market.  Losses  in  such  cases  are  passed  down,  step  by  step, 
to  the  traders  who  are  in  and  out  of  the  market.  It  may  be 
compared  to  passing  a  load  down  the  stairs,  one  step  at  a 
time,  instead  of  throwing  it  down  with  one  big  crash.  The 
whole  commercial  world  benefits  by  having  business  stabi- 


Till:    CHK'ACO    BOARD    OF    TRADE    AND    SPECULATION       181 

lized  and  kept  relatively  free  from  suddon  and  violent 
charges. 

Enemy  of  Monopoly. — The  pit  is  one  market  which  is 
open  to  an  unlimited  number  of  traders  any  hour  of  any  day, 
by  the  simple  process  of  forwarding  their  orders  to  their 
brokers.  There  is  little  room  for  doubt  that  should  the  or- 
ganized grain  exchanges  be  abolished  (and  particularly  fu- 
ture trading)  the  grain  trade  would  very  rapidly  be  central- 
ized in  the  hand  of  a  few  powerful  houses.  They  alone 
would  be  the  buyers.  They  would  declare  the  margins  on 
which  the  farmers'  grain  would  be  handled,  as  indeed  they 
once  did  before  the  Exchanges  were  able  to  curb  them.  The 
big  dealers  in  the  trade  themselves  confess  that  such  a  cen- 
tralization of  the  grain  trade  would  occur,  should  future 
trading  be  abolished.  But  the  speculators  in  the  future 
market,  numbered  by  the  tens  of  thousands,  and  living  all 
the  way  from  New  York  to  San  Francisco,  from  Winnipeg  to 
the  Gulf,  and  in  foreign  lands,  are  too  widely  scattered  and 
too  independent  to  be  controlled — so  long  as  the  market  re- 
mains free  and  open  to  them.  In  fact  these  many  "  small 
men"  curb  the  few  "big  ones." 

The  highly  competitive  nature  of  the  business  conducted 
on  the  trading  floor  of  the  organized  grain  exchange  is  appar- 
ent to  any  one  who  will  spend  a  few  days  or  weeks  in  atten- 
dance at  this  market.  The  foregoing  pages  of  this  book 
should  have  made  this  fact  perfectly  obvious  as  it  applies 
to  the  Chicago  Board  of  Trade.  It  is  not  necessary  to  repeat 
at  this  point  the  facts  concerning  the  number  and  occupa- 
tions of  the  members  of  the  Board  of  Trade,  their  scattered 
places  of  residence,  the  number  of  non-members  trading 
daily  through  these  members,  the  competition  among  large 
terminal  markets,  and  the  rise  of  numerous  strong  interior 


182      SPECULATION    AND    THE    CHICAGO    BOARD    OF   TRADE 

markets.  The  trading  on  the  floor  of  an  organized  exchange 
is,  in  letter  and  in  spirit,  a  great  auction,  open  to  the  whole 
world,  where  buyers  and  sellers  in  nearly  equal  numbers, 
make  their  bids  and  offers.  This  situation  is  best  appre- 
ciated only  by  contrasting  the  grain  trade  with  other  im- 
portant trades,  such  as  oil,  lumber,  sugar,  steel,  tobacco,  etc., 
in  none  of  which  is  there  an  organized  exchange.  It  is  a 
matter  of  common  knowledge,  for  instance,  that  when  oil 
exchanges  flourished,  during  the  70's,  there  was  competition 
in  the  petroleum  industry.  With  the  passing  of  these  ex- 
changes there  arose  the  domination  of  the  oil  trade  by  one 
centralized  group.  The  one  great  preventative  of  monopoly 
in  the  grain  trade  is  the  organized  exchange,  with  its  rules  of 
self-government  actually  made  by  the  majority  of  small 
traders. 

Stability  of  Values. — The  favorite  banking  paper  in  the 
Northwest  is  known  as  " grain  paper,"  representing  grain  in 
warehouses,  and  hedged  in  the  pit.  It  is  this  speculation 
which  renders  hedging  cheap  and  easy  which  also  gives, 
thereby,  stability  to  values  and  safety  to  all  investments 
connected  with  grain. 

(j)  "  Prohibit  Speculation  " :  Germany's  Experience.— 
There  is  always  in  evidence  a  strong  undercurrent  of  feeling 
that  speculation  should  be  "prohibited,"  and  should  in  some 
manner  be  entirely  "  eliminated. "  There  is  a  somewhat 
more  conservative  viewpoint,  also  in  evidence,  that  specula- 
tion should  be  checked  and  in  some  manner  lessened  in 
amount.  Some  would  have  this  checking  done  by  and 
through  the  organized  exchanges  themselves.  Others,  of 
course,  say,  "Let  the  government  do  it."  There  is  one 
government  which,  prior  to  the  World  War,  was  pointed  out 
as  the  great  model  of  efficient  administration  of  its  laws. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       183 

This  government  was  Germany.  Whatever  criticism  was 
leveled  against  its  principles,  policies,  and  programs,  the 
administration  of  those  laws  was  always  conceded  to  be  a 
very  model  of  scientific  and  expert  efficiency.  Now  this 
country,  Germany,  undertook  to  prohibit  speculation  in 
farm  products.  We  have  every  reason  to  believe  that  the 
law  was  administered  with  Prussian  efficiency.  Yet  this  law 
did  not  eliminate  speculation.  Neither  did  it  help  the  Farm- 
ers' Party  (Agrarians),  who  had  it  passed  on  the  grounds 
that  "speculation  depresses  prices."  The  effect  of  this  law 
on  speculation  and  on  prices  is  best  told  by  absolutely  disin- 
terested witnesses.  To  give  the  reader  the  benefit  of  such 
testimony,  there  is  reprinted  here  in  full  the  official  reports 
of  our  consuls  in  Germany  at  that  time,  just  as  these  reports 
were  made  to  our  own  government.  The  German  law  was 
passed  in  1896,  and  is  discussed  as  follows: 

GERMAN  LAW  AGAINST  EXCHANGE  SPECULATION 

U.  S.  Consular  Reports,  Vol.  LII,  No.  194,  Nov.,  1896 
Germany,  under  the  pressure  of  the  Agrarian  party,  has  under- 
taken what  other  nations  have  been  desirous  of  doing,  viz.,  to  check 
speculation  on  the  exchanges,  not  alone  in  stocks,  but  also  in  food 
products,  principally  grain.  Whether  this  will  be  accomplished  by 
the  new  law,  remains  to  be  seen,  and  it  will  certainly  be  very  in- 
teresting for  other  nations  to  watch  the  experiment.  Below  are 
given  the  most  salient  features  of  the  law: 

1.  No  exchange  can  be  established  without  the  consent  of  the 
Government,  which,  through  a  commissioner,  will  exercise  a  con- 
tinued supervision  over  its  actions  and  dealings. 

2.  A  court  of  honor  is  created,  which  may  exclude  persons  from 
the  exchange  after  due  trial.    Parties  who  have  been  judicially  de- 
clared bankrupt  will  be  excluded  for  at  least  six  months,  and  per- 
manently, if  the  bankruptcy  was  fraudulent. 


184   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

3.  When  the  listing  of  stocks  or  bonds  is  applied  for  at  the  ex- 
change, a  committee  will  make  a  thorough  investigation  of  all 
circumstances  affecting  their  security  and  desirability  and  will  then 
decide  whether  they  may  be  admitted.     Before  this  is  done,  a 
prospectus  must  be  published,  giving  all  particulars  of  such  se- 
curities.   Stocks  will  not  be  admitted  until  one  year  after  the  entry 
of  the  firm  name  in  the  commercial  register,  nor  before  the  publica- 
tion of  the  balance  sheet  for  the  first  business  year.    All  parties  who 
have  signed  the  prospectus  are  legally  liable  for  the  correctness  of 
the  statements  in  the  same,  and  must  make  good  any  loss  or  damage 
to  the  takers  of  such  securities  resulting  from  false,  misleading  or 
omitted  statements,  in  the  prospectus.    Besides,  they  are  liable  to 
be  criminally  prosecuted  if  the  circumstances  warrant  such  pro- 
ceedings. 

4.  All  dealings  in  futures  or  on  term  at  the  exchange  are  pro- 
hibited, unless  the  parties  to  the  transaction  are  entered  in  the 
so-called  exchange  register.     The  original  entry  in  this  register 
costs  150  marks  ($35.70)  and  an  annual  fee  of  25  marks  ($5.95)  is 
exacted  to  keep  the  entry  alive.    The  register  is  public  and  can  be 
inspected  by  any  person.    The  entries  are  at  once  published  in  the 
Imperial  Gazette  (Rei-chsanzeiger]  and  the  local  official  papers,  at 
the  expense  of  the  parties,  and  a  compilation  of  all  names  will  be 
published  once  a  year  hi  the  Imperial  Gazette.    Persons  omitting  to 
have  their  names  entered  in  the  exchange  register  have  no  legal 
claims  against  each  other  by  reason  of  any  term  transactions.    Such 
claims  are  considered  in  the  light  of  gambling  debts. 

5.  The  term  business  or  dealing  in  futures  in  grain  and  mill 
products  or  stocks  of  mining  and  manufacturing  establishments  on 
the  exchange  is  entirely  forbidden. 

6.  Whoever  habitually  and  for  selfish  purposes  induces  inex- 
perienced persons  to  speculate  on  the  exchange  in  such  articles  as 
are  outside  of   their  sphere  of  business  will  be   punished  with 
imprisonment   and   a   money  fine   not   exceeding    15,000  marks 
($3,570). 

7.  With  the  exception  of  the  paragraph  referring  to  the  exchange 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION    185 

register,  which  will  become  operative  on  November  1,  1896,  this 
law  will  go  into  effect  on  January  1,  1897. 

As  seen  from  the  above,  the  main  purpose  of  the  law  is  to  check 
speculative  dealings  on  term,  and,  as  far  as  this  relates  to  stocks,  its 
influence  will  probably  be  beneficial.  As  to  term  dealings  in  mer- 
chandise and  forbidding  term  sales  of  grain  and  mill  products,  this 
remedy  may  prove  to  be  of  doubtful  value.  The  produce  exchange 
was  created  for  want  of  an  institution,  the  primary  and  main  object 
of  which  was  to  facilitate  the  handling  of  agricultural  products 
after  the  harvests  and  to  distribute  them  over  the  entire  year  as  the 
necessity  arose.  It  is  true  that,  with  its  development,  such  evils  as 
"corners,"  dealing  on  margins,  and  other  forms  of  speculation  have 
also  crept  in,  often  much  to  the  disadvantage  of  farmers  and  con- 
sumers. From  a  moral  point  of  view,  the  effort  to  check  gambling 
and  illegitimate  dealings  on  the  exchange  is  very  laudable,  but  how 
will  this  work  in  reality?  In  future,  when  the  farmer,  after  the 
harvest,  shall  offer  his  crops  to  the  dealer,  the  latter  must  be  very 
cautious  in  naming  a  price,  because  he  has  no  facilities  of  covering 
himself  by  term  sales.  The  new  law  will  not  prohibit  a  dealer  from 
buying  "long"  grain  from  a  fanner  or  another  dealer,  if  the  bar- 
gains are  consummated  privately  at  the  farm  or  the  offices  of  the 
dealers,  but  will  not  allow  that  the  terms  of  such  bargains  be  pub- 
licly recorded.  Thus  the  dealers  really  have  no  scale  of  prices  except 
for  "spot"  grain,  which  fact  prevents  them  from  buying  freely, 
and  therefore  necessarily  exercises  a  depressing  influence  upon 
prices,  especially  after  the  harvest,  when  the  pressure  and  necessity 
to  sell  are  greatest. 

It  becomes,  at  a  glance,  apparent  what  a  terrible  blow  this  law 
is  to  the  produce  exchanges,  and  nobody  can  foretell  what  will 
hereafter  become  of  them.  The  dealers  are  very  much  alarmed,  lest 
it  may  threaten  the  very  existence  of  these  time-honored  establish- 
ments, and,  what  is  worse  for  them,  may  wipe  out  Germany's 
influence  and  importance  in  the  international  markets  and  induce 
German  capital  to  remove  to  foreign  countries.  Although  the 
Agrarians  expect  many  advantages,  especially  a  rise  in  the  price  of 


186      SPECULATION    AND    THE    CHICAGO    BOARD    OF   TRADE 

grain,  from  this  law,  they  have  so  far  been  disappointed,  because, 
since  the  law  was  passed,  the  prices  have  moved  in  the  other  direc- 
tion, no  doubt  greatly  influenced  by  the  lack  of  enterprise  occasioned 
by  the  damaging  influences  expected  by  its  operation. 

The  export  of  grain  from  the  United  States  to  Germany  will  also 
suffer,  because  the  German  dealer  can  not  now  buy  great  quantities 
at  a  time,  for  the  reason  that  he  can  not  cover  himself  in  advance 
by  term  sales. 

Another  interesting  feature  of  the  law  is  the  establisliment  of 
the  exchange  register,  or  gambling  register,  as  it  is  commonly  called. 
The  term  business  in  grain  and  mill  products  on  the  exchange  is 
forbidden  by  the  law,  as  I  have  mentioned  before,  but  the  term 
business  in  stocks  or  other  farm  products  is  allowed,  provided  the 
parties  to  the  transaction  enter  their  names  in  the  exchange  register. 
As  the  latter  is  on  public  record,  secret  gambling  on  the  exchange  by 
private  individuals  is  thereby  done  away  with,  because  a  private 
party  can  not  afford  to  have  his  name  publicly  exposed  in  the 
gambling  register,  and  a  dealer  can  not  venture  to  do  business  with  a 
party  against  whom  he  could  not  press  a  claim.  Even  a  deposit  will 
not  protect  him,  because  he  can  not  touch  it,  having  no  legal  claim 
against  the  speculator.  This  feature  of  the  law  really  appears  to  be  a 
good  one,  because  it  will  prevent  private  individuals  from  speculat- 
ing in  things  of  which  they  know  nothing,  a  speculation  which  has 
seldom  brought  wealth,  but  often  ruin  and  shame  to  a  man  and  his 
family.  The  dealers  naturally  dislike  this  very  much,  because  it 
robs  them  of  the  opportunity  of  continuing  to  shear  the  lambs. 
They  say  that,  without  speculation,  it  will  be  very  difficult  to  dis- 
pose of  such  enormous  crops,  as,  for  instance,  the  sugar  crop,  and 
that  the  keeping  away  of  private  speculators  can  not  but  have  a 
depressing  effect  upon  prices.  This  is  no  doubt  true  to  some  extent ; 
but,  on  the  other  hand,  the  moral  advantage  of  keeping  innocent 
outsiders  away  from  the  demoralizing  influences  of  exchange  gam- 
bling in  a  thing  worth  trying,  and  if  this  feature  of  the  law  succeeds 
it  will  indeed  be  a  blessing.  But  human  ingenuity  will  probably  also 
find  a  way  to  get  around  this  stipulation  of  the  law,  and  I  should 


THE  CHICAGO  BOARD  OF  TRADE  AND  SPECULATION  187 

not  be  surprised  to  see  the  German  lambs  go  speculating  in  London 
or  Paris  or  Vienna  hereafter,  carrying  not  alone  the  commission,  but 
also  their  wool  to  foreign  countries,  instead  of  letting  their  German 
countrymen  do  the  clipping,  as  heretofore. 

The  establishment  of  the  exchange  register  will  necessarily 
diminish  transactions  at  all  German  exchanges,  thus  curtailing 
their  importance  and  influence  on  the  world's  markets  in  general. 
It  will  no  doubt  also  tend  to  drive  considerable  money  and  business 
to  foreign  countries,  much  to  the  detriment  of  German  commerce. 

The  general  opinion  is  that  the  law,  in  its  present  form,  will  not 
stand,  but  must  be  modified  in  many  ways  before  its  effects  will  be 
less  detrimental  to  commerce  in  general  than  corrective  of  the  evils 
which  it  is  intended  to  remedy. 

Magdeburg,  August  31,  1896. 

(Signed)  JULIUS  MUTH,  Consul. 

WORKING  OF  GERMAN  LAW  ON  EXCHANGE 
SPECULATION 

U.  S.  Consular  Reports,  Vol.  LXII,  No.  235,  April,  1900 

In  compliance  with  a  request  from  a  San  Francisco  editor,  an 
instruction  was  sent  by  the  Department  to  Consul  General  Mason, 
December  13,  1899,  asking  for  information  in  regard  to  the  working 
of  the  law  to  prohibit  speculation  in  grain  on  'change  in  Germany. 
The  reply,  dated  January  6,  1900  (copy  of  which  has  been  sent  the 
correspondent)  reads: 

The  statute  in  question  was  translated  and  fully  described  by 
Consul  Julius  Muth,  of  Magdeburg,  in  a  report  dated  August  31, 
1896,  which  was  published  in  CONSULAR  REPORTS,  No.  194,  Novem- 
ber, 1896,  page  447.  Its  effects  have  been  exactly  what  was  in- 
tended, to  prevent  grain  speculation  in  chambers  of  commerce  and 
produce  exchanges;  but  it  is  stated  that  such  transactions  are  still 
carried  on  to  some  extent  privately,  the  negotiations  taking  place 
in  counting  rooms,  restaurants,  and  on  the  street.  As  there  is  no 
public  or  other  definite  record  of  these  transactions,  it  is  impossible 


188      SPECULATION    AND    THE    CHICAGO    BOARD    OF    TRADE 

to  give  any  approximate  estimate  of  their  number  or  amount;  but 
commercial  men  and  journals  generally  agree  that  the  law,  while 
favoring  to  some  extent  the  interests  of  the  agrarians  or  agricul- 
turists, has  operated  badly  for  Germany  by  throwing  discredit  upon 
what  is  elsewhere  recognized  as  a  legitimate  form  of  trade,  and 
thereby  driving  out  of  the  country  to  Antwerp,  London,  and 
Amsterdam  dealings  which  would  otherwise  take  place  at  Bremen, 
Hamburg,  Berlin,  Frankfort,  Mannheim,  and  other  German  cities. 

WORKING  OF  THE  GERMAN    LAW  AGAINST  SPECULA- 
TION IN  GRAIN 

U.  S.  Consular  Reports,  Vol.  LXIV,  No.  243,  December,  1900 

In  response  to  the  request  of  the  Department  for  a  more  detailed 
report  of  the  practical  effects  of  the  German  law  restricting  specula- 
tion in  stocks  and  forbidding  operations  in  grain  futures,  I  have 
to  report  as  follows: 

The  statute  in  question  was  enacted  in  1896,  and,  with  the  excep- 
tion of  one  paragraph  relating  to  exchange  registers,  went  into 
effect  on  the  1st  of  November  in  that  year.  Its  effective  provisions 
relating  to  speculation  in  grain  are  contained  in  paragraphs  3  and  4, 
the  first  of  which  prescribes  that: 

"All  dealings  in  futures  or  on  term  at  the  exchange  are  prohibited 
unless  all  parties  to  the  transaction  are  entered  in  the  so-called  ex- 
change register.  Persons  omitting  to  have  their  names  entered  on 
the  exchange  register  have  no  legal  claims  against  each  other  by 
reason  of  any  transactions  on  term.  Such  claims  are  considered 
gambling  debts." 

Paragraph  5  declares  that: 

"The  term  business,  or  dealing  in  futures  in  grain  and  mill 
products  or  stocks  of  mining  and  manufacturing  establishments  on 
the  exchange,  is  entirely  forbidden." 

The  law  as  it  was  enacted  was  inspired  by  the  Agrarian  party  in 
Germany,  which  includes  most  landowners  and  representatives  of 
agricultural  interests,  arid  its  avowed  purpose  was  to  steady  the 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION    189 

market  values  of  securities  and  especially  cereals,  which,  as  the 
Agrarians  claimed,  were  unduly  depressed  and  disturbed  by  specula- 
tions in  which  grains  were  bought  and  sold  on  exchange  for  future 
delivery.  The  law  is  a  drastic  and  radical  piece  of  class  legislation, 
and  its  enforcement  during  the  past  three  and  a  half  years  has  con- 
stituted an  experiment  which  has  naturally  been  watched  with 
interest  by  the  economists  of  other  countries.  As  to  its  effects, 
opinions  differ  in  accordance  with  the  interests  and  preconceived 
ideas  of  the  person  consulted.  The  Agrarians  claim  that  while  it 
has  not  increased  the  market  values  of  home-grown  cereals  in  the 
German  markets  to  the  extent  that  was  expected,  it  has  at  least 
rendered  them  more  steady  and  uniform ;  that  it  has  given  Germany 
an  autonomous  home  market,  dominated  by  their  own  grades  and 
qualities  of  grain  and  controlled  by  German  conditions  of  supply 
and  demand,  independent  of  the  markets  at  Odessa,  Antwerp, 
Liverpool,  or  Chicago;  and,  finally,  that  it  has  stimulated  and 
elevated  the  morals  of  trade — the  sale  or  purchase,  on  paper,  of 
produce  not  actually  in  sight  being  considered,  from  the  Agrarian 
standpoint,  to  be  immoral. 

On  the  other  hand,  the  commercial  and  industrial  classes  of 
business  men  in  this  part  of  Germany,  including  also  many  of  the 
more  intelligent  agriculturists,  seem  convinced  that  the  whole 
effect  of  the  law  has  been  abortive,  and  not  only  of  no  practical 
advantage,  but  a  positive  injury  to  the  interests  of  German  agricul- 
ture. 

It  is  of  course  impossible  to  harmonize  opinions  so  radically 
diverse  as  these,  and  it  only  remains  for  the  impartial  student  of 
this  subject,  who  seeks  to  get  at  the  truth — whatever  it  may  prove 
or  disprove — to  follow  the.  register  of  grain  imports,  prices,  and 
other  facts  of  record  during  the  past  three  years  and  see  what  bear- 
ing they  have  upon  the  point  of  dispute. 

It  was  hoped  by  the  farmers  and  advocates  of  the  law  that  its 
effect  would  be  to  restrict  the  importation  of  foreign  grain,  but 
statistics  show  that  grain  imports — which  are  governed  here,  as 
elsewhere,  by  the  relation  between  consumption  and  local  supply — 


190       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

have  increased  rather  than  diminished.  The  population  of  the 
Fatherland  is  rapidly  increasing;  all  classes  of  working  people  here 
have  been  more  prosperous  during  recent  years  than  ever  before, 
and  the  consumption  of  wheat  and  the  better  grade  of  rye  bread  has 
become  more  general.  The  harvests  of  Germany  have  not  been 
able  to  meet  this  growing  demand,  and  consequently  imports  of 
both  these  cereals  have  increased,  as  might  have  been  readily 
foreseen. 

The  claim  of  the  Agrarians  that  the  effect  of  the  law  has  been  to 
render  steady  and  uniform  the  prices  of  cereals  is  not  confirmed  by 
the  record  of  expert  opinion,  so  far  as  the  latter  can  be  obtained. 
For  instance,  during  the  summer  and  autumn  season  of  1897-1898, 
the  natural  influence  of  a  good  harvest  reduced  prices  and  the 
German  farmers,  being  all  at  sea  as  to  the  harvests  of  other  coun- 
tries and  therefore  at  the  mercy  of  a  few  well-informed  speculators, 
hastily  sold  a  large  part  of  their  crops  (estimated  at  3,400,000  tons) 
at  low  rates  for  export  to  France,  England  and  Austria.  When, 
later  in  the  season,  the  general  wheat  market  rose  nearly  $25  per  ton 
above  the  summer  rate,  the  deficit  created  by  this  excessive  export 
had  to  be  filled  by  importation  from  the  United  States  and  Russia. 
Commercial  experts  writing  on  the  teachings  of  that  episode  assert 
that  the  prohibition  of  legitimate  speculative  operations  in  grain 
kept  the  price  in  Germany  for  a  long  time  from  $6  to  $10  below 
where  it  would  have  been  otherwise,  and  thus  facilitated  the  exces- 
sive exports  which  afterwards  had  to  be  replaced  and  made  up  for  at 
such  heavy  cost  to  the  people.  As  it  failed  to  sustain  the  prices  of 
home-grown  cereals  during  the  season  of  plenteous  harvest,  so  also 
the  law  failed  to  restrict  in  any  way  the  actual  importations  of 
foreign-grown  grains  when  the  needs  of  public  consumption  re- 
quired them.  In  proof  of  these  conclusions,  it  is  only  necessary  to 
follow  the  course  of  the  market  during  that  period  and  trace  each 
successive  fluctuation  to  its  obvious  and  recognized  cause. 

In  the  year  1897,  when  the  statute  first  went  into  effect,  wheat 
cost  in  Berlin  about  180  marks  ($42.84)  and  rye  130  marks  ($30.94) 
per  metric  ton.  In  June  of  the  same  year,  these  grains  stood  at 


THE    CHICAGO    BOARD    OP    TRADE    AND    SPECULATION    191 

150  marks  ($35.70)  (sold)  and  115  marks  ($27.37)  respectively,  or 
about  the  lowest  price  that  has  been  reached.  From  then  on  the 
prices  began  to  rise  continuously,  with  small  setbacks,  until  the 
9th  of  May,  1898,  when  wheat  reached  270  marks  ($64.26)  and  rye 
185  marks  ($44.03)  per  ton.  There  was  therefore  a  fluctuation  in 
the  course  of  this  year  of  120  marks  in  the  price  of  wheat  and  70 
marks  in  that  of  rye.  From  the  10th  of  May,  the  prices  began  to  fall 
so  rapidly  and  suddenly  that  in  the  first  half  of  August  of  the  same 
year  wheat  stood  at  about  150  marks  ($35.70)  and  rye  at  about 
127  marks  ($30.22)  per  ton;  that  is,  a  decline  in  three  and  a  half 
months  of  120  marks  ($28.56)  per  ton  in  wheat  and  of  60  marks 
($14.28)  in  rye.  Since  then,  the  prices  for  wheat  have  fluctuated 
between  140  marks  ($33.32)  and  170  marks  ($40.46)  and  rye  be- 
tween 135  marks  ($32.13)  and  155  marks  ($36.89)  per  ton. 

The  reasons  for  these  large  fluctuations  without  sale  by  commis- 
sion were  as  follows: 

The  partial  failure  of  crops  in  Hungary  and  France  and  light 
harvests  in  Russia  caused  a  rise  in  the  world's  market  for  wheat  and 
rye,  which  was  further  sustained  by  reductions  of  grain  duties  in 
France,  Spain,  and  Italy,  by  the  operations  of  Mr.  Leiter,  at  Chi- 
cago, and  especially  by  the  gathering  clouds  of  the  Spanish-American 
war.  As  a  direct  normal  result  of  these  causes,  prices  were  high 
during  the  winte::  of  1897-1898  and  only  yielded  when  the  favorable 
spring  weather  and  fine  outlook  for  large  crops  of  both  spring  and 
winter  wheat  broke  the  market  and  brought  prices  down  to  their 
natural  level.  Corn  and  oats  passed  through  similar  fluctuations, 
showing  that  only  the  elementary  forces  of  nature  really  control  the 
grain  market.  The  German  statute  against  speculations  was 
powerless  to  produce  any  other  result  than  that  of  rendering  the 
farmers  subject  to  the  whims  of  local  millers  and  small  traders. 

The  high  average  price  which  rye  maintained  in  Germany  during 
1898  and  1899,  which  Agrarian  economists  sometimes  ascribe  to  the 
influence  of  the  law  of  1896,  is  easily  traceable  to  the  other  facts: 
light  crops  in  Russia — the  source  of  Germany's  chief  foreign  sup- 
ply— the  increased  consumption  of  rye  bread  by  the  Russian 


192       SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

peasantry,  and  the  consequently  greatly  diminished  supply  for 
export  from  that  country. 

Finally,  there  is  the  interesting  if  somewhat  less  important 
question,  What  has  been  the  effect  of  the  law  upon  the  commercial 
classes,  members  of  produce  exchanges,  and  chambers  of  commerce 
in  Berlin  and  the  other  leading  grain  marts  of  Prussia,  viz,  Stettin, 
Magdeburg,  Halle,  Danzig,  and  Konigsberg?  Upon  this  point,  the 
testimony  of  experts  is  practically  unanimous  and  conclusive.  The 
market  editor  of  the  leading  financial  journal  of  Berlin  says,  hi  a 
special  report: 

"The  effects  of  the  law  of  1896  upon  the  legitimate  interests  of 
the  bourse  have  been  disastrous.  One  class  of  business  men — 
commission  merchants — has  wholly  disappeared.  Through  its 
important  and  direct  connections  with  the  provinces  and  foreign 
countries,  Berlin  was  formerly  one  of  the  most  influential  markets 
of  Europe,  but  since  the  law  against  grain  futures  went  into  force, 
it  has  dropped  to  the  rank  of  a  small  provincial  market.  For 
providing  Germany  with  grain  during  periods  of  stringency  and 
short  home  supply,  the  system  of  buying  and  selling  on  commission 
is  indispensable.  It  protects  the  importer  from  the  danger  of  a  heavy 
decline  in  prices  by  enabling  him  to  dispose  of  his  imports  at  the 
same  time  that  they  are  ordered.  To  some  extent,  Berlin  mer- 
chants have  speculated  during  the  past  three  years  through  agents 
in  Liverpool,  New  York,  and  Chicago,  and  this  with  the  apparent 
knowledge  and  tacit  approval  of  the  German  Government,  which 
realizes  that  the  German  grain  market  is  controlled  by  influences 
outside  of  .this  country  and  that  Germany  can  not  play  an  inde- 
pendent role  in  relation  to  the  supply  and  price  of  breadstuffs." 

In  view  of  the  importance  and  technical  difficulties  of  this  sub- 
ject, it  has  been  deemed  advisable  to  obtain  for  the  purposes  of  this 
report,  from  a  high  and  impartial  German  authority,  a  formal 
review  of  the  conditions  which  led  to  the  enactment  of  the  antigrain 
Option  Law,  its  effects,  so  far  as  they  can  now  be  estimated,  and 
what  prospect,  if  any,  there  is  on  an  early  modification  or  repeal  of 
the  statute.  For  this  purpose,  application  was  made  to  a  Berlin 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       193 

jurist  of  high  standing  and  ripe  experience  in  the  practice  of  com- 
mercial law,  who  has  with  great  courtesy  prepared  for  this  report 
the  following  statement: 

"The  grain  traffic  in  Germany,  which  forty  years  ago  had  a 
limited  scope  and  importance  and  which,  partly  because  of  the 
limited  demand  and  partly  on  account  of  the  restricted  develop- 
ment of  the  railway  system,  was  confined  mainly  to  the  interior 
of  the  Empire,  has  since  then  gradually  but  solidly  increased  as 
Germany  became  more  and  more  unable  to  produce  the  requisite 
supply  of  cereals.  First  from  Austria,  then  from  Russia,  then  from 
other  grain-exporting  countries  came  especially  wheat,  until  finally 
it  became  necessary  to  supply  the  demand  by  drawing  upon  the 
general  wheat  market  of  the  world. 

"It  thus  followed  that  international  commercial  usages  were 
adopted  in  Germany  and  among  these  dealings  in  grain  futures, 
which  had  been  found  necessary  and  requisite.  This  international 
grain  trade  developed  rapidly  in  Germany  and  centered  especially 
in  the  chambers  of  commerce  at  Mannheim  and  Berlin. 

"During  the  early  nineties,  an  unusually  large  number  of  bank- 
ruptcies on  the  stock  exchange  attracted  public  opinion  in  this 
country  much  more  closely  to  the  general  conditions  of  business  on 
the  bourse,  and  led  to  an  official  inquiry  into  the  subject. 

"Meanwhile,  the  Agrarian  party  in  Germany  had  acquired  such 
strength  and  influence  as  to  practically  control  all  measures  of 
legislation.  A  law  governing  bourse  transactions  was  enacted,  and 
the  Agrarian  party,  with  the  hope  of  raising  the  inland  market  price 
of  grain,  inserted  a  clause  in  the  bourse  statute  absolutely  pro- 
hibiting the  sale  and  purchase  of  'futures'  in  cereals  and  mill 
products.  At  the  same  time  the  Prussian  Minister  of  Commerce 
issued  a  regulation  based  on  the  bourse  law,  in  which  he  forced  the 
representatives  of  agriculture  into  the  boards  of  management  of  the 
produce  exchanges,  and  there  was  chosen  for  the  Berlin  bourse  the 
hotspur  of  the  Agrarian  party,  together  with  whom  the  merchants 
were  obliged  to  decline  to  work,  for  the  reason  that  during  the  recent 
debates  over  the  bourse  law  the  Agrarian  orators  had  vilified  the 


194      SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

merchants  with  shameless  abuse.  It  was  especially  in  consequence 
of  this  regulation,  which  the  commercial  and  financial  classes  recog- 
nized as  a  direct  slap  in  the  face  that  the  members  of  the  Berlin 
Produce  Exchange  declared  unanimously  (January  2,  1897)  that 
they  would  no  longer  remain  on  the  bourse,  and  they  thereupon  left 
it  altogether.  At  the  same  time,  the  prosperous  grain  business  of 
the  exchange  was  completely  ruined  by  the  prohibition  as  to  dealing 
in  futures.  A  number  of  the  principal  commercial  cities  of  Prussia, 
Stettin,  Magdeburg,  Halle,  Danzig,  and  Konigsberg  followed  the 
example  of  Berlin. 

"In  consequence  of  the  absolute  impossibility  of  dispensing 
wholly  with  sales  and  purchases  for  future  delivery,  the  grain  mer- 
chants were  forced  to  conduct  their  business  under  a  plan  by  which 
they  made  at  places  other  than  the  bourse  the  so-called  legal 
specified  term  orders  (handelsrechtliche  Lieferungsgeschaft),  in 
so  far  as  they  related  to  produce  not  actually  in  hand.  These 
specified  time  contracts  are  in  fact  a  method  of  business  authorized 
by  commercial  law,  in  which  the  buyer,  in  case  of  non-delivery  of 
the  goods  on  a  specified  day,  must  grant  (to  the  seller)  a  still  further 
extension  of  time.  Meanwhile,  the  meetings  for  these  operations 
were  recognized  by  the  officials  as  'exchanges'  and  were  ordered  to 
be  discontinued.  The  results,  therefore,  of  the  prohibition  of 
transactions  in  grain  futures  in  Berlin  may  be  synopsized  as  follows: 

"  (1)  Dealings  in  futures  are  necessary  and  indispensable  to 
dealers,  importers,  exporters,  and  millers  for  the  avoidance  of  mere 
gambling  in  grain.  Such  dealings  prevent  sudden  fluctuations  in 
prices  and  equalize  the  prices  of  cereals  from  one  harvest  to  another 
in  accordance  with  the  natural  conditions  of  supply  and  demand. 
It  is  a  fact  of  definite  record  that  since  the  1st  of  January,  1897,  our 
inland  cereals,  in  spite  of  their  good  quality,  have  ruled  considerably 
below  the  market  prices  of  other  countries,  a  condition  which  was 
formerly  of  rare  occurrence  and  merely  temporary. 

"  (2)  The  legal  specified  term  orders  (handelsrechtliche  Lieferung- 
sgeschaft) is  for  a  good  market  like  Berlin  no  adequate  substitute 
for  regular  dealings  in  grain  futures  on  a  produce  exchange. 


TIIK    CHICAGO    HOARD    OP    TRADE    AND    SPECULATION    195 

"  (3)  With  the  abolition  of  dealings  in  futures  it  became  impossi- 
ble to  establish  fixed  standard  prices,  while  prices  that  were  made 
by  secret  transactions  have  had  none  of  the  authority  and  fixedness 
that  belonged  to  open,  legitimate  operation  on  the  bourse  prior  to 
January  1,  1897. 

"  (4)  The  creation  of  stocks  of  grain  here  in  Berlin  has  greatly 
diminished  since  the  prohibition  of  dealings  in  futures. 

"(5)  The  legitimate  local  speculations  have  been  necessarily 
conducted  in  foreign  markets,  where  they  were  subject  to  high  fees 
and  expenses,  and  to  the  influence  of  'corners'  all  of  which  would 
have  been  avoided  had  local  dealings  in  futures  been  permitted. 

"  (6)  The  so-called  ' small  man'  in  the  grain  trade  is  the  one  most 
injured  by  the  suppression  of  futures — many  have  been  wholly 
ruined;  only  a  few  have  been  able  to  maintain  a  modest  and  un- 
certain existence. 

"  (7)  The  importation  of  foreign  cereals — which  covers  only  a 
small  percentage  of  the  total  consumption — has,  contrary  to  the 
hopes  of  Agrarians,  not  been  affected  one  way  or  another. 

"(8)  The  stability  of  the  grain  market  during  the  past  three 
years  has  been  in  no  way  affected  by  the  prohibition  of  dealings  in 
futures,  but  has  been  solely  controlled  by  natural  causes  (short 
crops  in  Germany  and  foreign  countries). 

"Quite  recently,  there  has  been  a  movement  looking  toward  the 
reorganization  of  the  produce  exchange  by  means  of  a  revision  of 
the  bourse  regulations  by  the  Prussian  Ministiy  of  Commerce,  so 
as  to  eliminate  the  affront  to  the  honor  of  merchants  which  is  im- 
plied by  the  first  regulations  (January  1,  1897);  and  since  the 
bourse  law  forbids  transactions  in  futures,  it  is  proposed  to  agree 
with  the  Government  upon  the  use  of  final  bills  of  sale  (Schlus- 
scheine)  which,  while  they  would  not  reestablish  dealings  in  futures, 
would  endeavor  to  provide  some  sort  of  substitute  for  them. 

"Under  this  new  regime,  based  upon  the  final  bills  of  sale  (Schlus- 
scheine)  which  have  been  approved  by  the  Prussian  Government, 
the  bourse  ratification  for  grains  and  mill  products  is  again  reestab- 
lished. 


196      SPECULATION   AND    THE    CHICAGO    BOARD    OF   TRADE 

"On  the  whole,  the  Government  is  thoroughly  convinced  of  the 
unjustified  injury  which  legitimate  commerce  has  suffered  through 
the  prohibition  of  dealings  in  grain  futures.  It  knows  quite  as  well 
as  the  Agrarians  that  this  prohibition  has  secured  for  cereals  grown 
in  the  interior  of  Germany  no  better  market  and  no  higher  prices. 
But,  in  view  of  the  present  dominating  influence  of  the  Agrarians, 
whose  leaders  naturally  seek  to  avoid  any  confession  of  their  mis- 
takes, the  Government  is  not  now  in  position  to  secure  a  repeal  of 
the  prohibition." 

Such  are  the  verdicts  of  two  men  whose  positions  and  experience 
entitle  them  to  recognition  as  expert  observers  of  the  actual  work- 
ings of  the  German  antioption  law.  While  their  opinions  may  bo  to 
some  degree  shaped  by  their  interests  as  members  of  the  commercial 
class  in  Berlin,  there  can  be  no  doubt  that  they  express  substantially 
the  sentiment  of  the  whole  industrial  and  mercantile  community  in 
this  country,  which,  in  matters  of  fiscal  and  economic  policy,  is 
opposed  to  Agrarian  exclusiveness  and  conservatism. 

(Signed)  FRANK  H.  MASON, 
Consul-General . 

Berlin,  August  28,  1900. 

These  quotations  bring  the  story  of  Germany's  legislation 
down  to  1900. 

On  April  2,  1900,  future  trading  in  grains  was  reopened. 
According  to  the  report  of  the  " Eldest  of  the  Merchants"  at 
this  time,  the  only  persons  benefiting  by  the  Bourse  Law  of 
1896  were  the  interior  dealers  who  worked  on  wider  margins 
—paid  the  farmers  less  and  sold  the  grain  for  more.  The 
Bremen  Cotton  Exchange,  whose  future  trading  in  cotton 
was  stopped  by  this  same  Bourse  Act,  was  later  reopened  to 
future  trading. 

Thus  did  Germany  undergo  a  change  in  policy  towards 
future  trading. 

(k)  Speculation   a   Social   Question.— In   the   foregoing 


THE    CHICAGO    BOARD    OF    TRADE    ANTD    SPECULATION    197 

pages  speculation  has  been  discussed  as  it  is  related  to  and 
forms  a  part  of  our  organized  exchanges.  There  is,  however, 
but  an  insignificant  part  of  the  world's  speculation  con- 
ducted on  produce  exchanges.  Speculation  is  as  wide  as 
society  itself  and  as  old  as  society.  The  John  Law  scheme, 
the  Mississippi  Bubble,  Holland  Tulip,  Spanish  Jackasses, 
Western  lands,  Oil  wells,  Gold  mines,  Rubber  plantations, 
"Booms"  in  western  cities,  Black  Friday  and  Gold  Specula- 
tion,— always  some  speculative  activity.  There  is  not  only 
much  speculation  outside  the  exchanges,  but  there  is  much 
speculation  in  grain  outside  the  grain  exchanges. 

Is  it  possible  to  draw  the  line  between  "  unwise  invest- 
ments" and  speculations?  Every  village  can  point  to  at 
least  one  empty  and  idle  factory,  now  failed  and  out  of  busi- 
ness, due  to  "unwise  investment"  of  capital  by  some  one. 
The  sum  total  of  money  wasted  in  this  way  runs  up  into 
many  millions.  The  art  of  safe  and  sound  investment  is  an 
art  which  likely  not  more  than  one  man  in  a  hundred  posses- 
ses. Such  a  man,  directing  his  own  investments  and  those  of 
others  into  productive  channels  is  entitled  to  great  financial 
reward  and  to  great  praise. 

The  writer  was  once  asked  to  prepare  a  paper  on  "Edu- 
cated Gullibility,"  the  purpose  of  the  paper  being  to  show 
the  "unwise  investments"  made  by  two  educated  classes, 
college  professors  and  preachers.  Fifty  persons  were  inter- 
viewed for  the  purpose.  Every  one  of  these  persons  had  lost 
money  through  "unwise  investments."  The  term  specula- 
tion is  more  correct  but  less  euphonious  in  this  connection. 
If  the  educated  classes  are  "economic  illiterates"  in  this 
field  of  investing  money,  it  stands  to  reason  that  many  other 
persons  are.* 

*  A  surprisingly  large  number  of  middle-aged  farmers  have  in  their 


198       SPECULATION    AND    THE    CHICACJO    BOARD    OF    TRADE 

It  is  not  strange  that  so  many  men  of  noto,  whose  his- 
tory we  now  know,  became  entangled,  not  through  "  unwise 
investments"  of  their  own,  but  through  being  drawn  in  by 
their  friends.  When  Mark  Twain's  estate  was  settled,  it  is 
said  that  there  was  found  among  his  assets  a  goodly  sized 
pile  of  " securities"  in  bogus  and  fake  enterprises.  The 
great  financial  calamity  of  his  life  was  his  venture,  with  his 
friends,  in  starting  a  publishing  house.  A  somewhat  similar- 
tragedy  befell  Walter  Scott,  who  was  held  for  the  debts  of  a 
failed  publishing  venture.  The  years  of  grinding  toil  which 
followed  this  "unwise  investment"  of  his  friends,  in  order  to 
lift  the  burden  of  debt,  unquestionably  shortened  the  life  of 
Scott.  William  E.  Gladstone's  experience  with  "unwise1 
investments"  was  somewhat  similar  to  Walter  Scott's. 
This  great  statesman,  while  occupied  with  problems  of  the 
British  Empire,  had  to  meet  out  of  his  personal  income 
heavy  debts  incurred  by  others.  The  story  of  President 
U.  S.  Grant  is  familiar — how  he  permitted  the  use  of  his 
name  by  a  company  which  later  failed,  and  how  he  felt  in 
honor  bound  to  pay  the  creditors — and  how  it  took  years  of 
time  and  the-  sacrifice  of  his  personal  belongings  to  meet 
these  debts. 

These  "unwise  investments,"  or  speculations,  as  we  may 
frankly  call  them,  have  this  evil  in  common,  namely,  the 
speculator  was  speculating  with  somebody  else's  money. 
This  is  an  evil  of  speculation  which  is  without  one  redeeming 
feature. 

The  foregoing  illustrations  show  that  speculation  is  a 
bigger  question  than  the  mere  organized  exchanges.  It 
suggests  the  possibility  that  an  organized  exchange 

possession  an  assortment  of  beautifully  printed  certificates  of  stock 
in  defunct  corporations,  particularly  in  "cooperative"  corporations. 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       199 

might  limit  and  curtail  some  of  the  evil  aspects  of  specu- 
lation. 

Successful  speculation  fails  to  receive  the  same  social 
condemnation  as  unsuccessful  speculation.  Take  the  sub- 
ject of  land  speculation — always  the  leading  form  of  specu- 
lation in  America.  The  richest  man  in  America,  at  the  close 
of  the  Revolution,  was  our  revered  first  President,  George 
Washington.  At  the  time  of  his  death  in  1799  his  estate  was 
worth  nearly  one  million  dollars.  The  bulk  of  this  fortune, 
we  now  know,  came  from  land  speculation,  particularly  in 
New  York,  Pennsylvania,  and  along  the  Ohio  River.  While 
George  Washington  was  a  successful  farmer,  so  far  as  the 
worn-out  Virginia  estate  would  permit  success,  he  was  un- 
able to  increase  his  wealth  by  farming  this  soil.  But  his 
land  speculations  proved  very  profitable.  The  ethics  of  this 
speculation  is  not  generally  called  in  question. 

Prior  to  Washington's  day  all  large  business  ventures 
were  deemed  hazardous  and  were  uniformly  called  "adven- 
tures, "  and  the  men  carrying  them  out  were  officially  termed 
"  adventurers. "  Thus  the  good  Pilgrim  Fathers  who  first 
settled  in  New  England  were  sent  over  by  a  corporation, 
designated  by  its  charter  as  a  "company  of  adventurers." 
In  a  modern  sense,  they  were  speculators,  endeavoring  to 
establish  "trade,  fisheries  and  plantations"  in  the  New 
World.  This  illustrates  the  better  side  of  the  speculative 
spirit,  adventuring  into  new  fields,  assuming  risks,  out  of 
which  may  come  social  gains.  Without  some  speculation  of 
this  kind,  no  new  continents  would  have  been  discovered;  no 
new  lands  settled;  no  new  cities  built;  no  railroads  or  mines 
or  steamships  put  to  man's  use.  All  progress  is  dependent 
upon  a  certain  degree  of  speculation,  in  the  wholesome  use 
of  the  term. 


200      SPECULATION    AND    THE    CHICAGO    BOARD    OF    TRADE 

(1)  Evils  of  Speculation. — The  ethical  aspects  of  the 
abuse  of  speculation,  rather  than  the  economic  aspects  of  the 
use  of  speculation,  are  uppermost  in  the  minds  of  the  people. 
"The  people  hath  spoken."  Hence  the  rather  general  con- 
demnation of  speculation  of  all  kinds,  good  and  bad  alike. 
The  employment  departments  of  large  corporations  gener- 
ally require  the  applicant  to  be  vouched  for  by  those  com- 
petent to  speak,  and  one  question  on  the  blank  form  used  is 
"Does  the  applicant  speculate?"  Positions  of  trust  are 
barred  to  the  man  who  speculates. 

There  are  two  kinds  of  speculation — good  and  bad,  and 
there  are  two  kinds  of  speculators — the  fit  and  the  unfit. 
Speculation  by  the  unfit  is  bad  speculation.  Those  unfit  to 
speculate  are  those  (1)  who  lack  the  financial  means  to  stand 
losses;  (2)  those  who  have  not  sufficient  information,  and  (3) 
those  who  are  occupying  positions  of  trust,  especially  those 
who  are  directly  entrusted  with  funds  belonging  to  others. 
The  evils  of  speculation  arise  from  the  speculation  by  the 
unfit.  The  Board  of  Trade  realizes  this  fact  more  than  the 
outsider.  Members  of  the  Board  of  Trade  are  constantly 
paying  the  penalty  of  the  abuse  of  speculation  by  the  unfit. 
Within  recent  years,  for  instance,  a  house,  lax  in  its  methods, 
accepted  speculative  trades  from  the  cashier  of  a  large  firm 
on  the  Board  of  Trade.  This  ran  on  for  some  time,  till  the 
crisis  arrived,  and  the  cashier — honest  man  though  he  had 
been  for  seventeen  years — was  found  to  have  stolen  $60,000 
of  his  employer's  money.  All  firms  on  the  Board  with  a  big 
list  of  speculative  customers  experience  losses  through  "bad 
debts,"  that  is,  through  allowing  credit  to  unfit  speculators. 
Some  of  these  losses  are  very  large.  Every  member  of  the 
Board  is  familiar  with  cases  among  his  own  acquaintances  of 
suicides  caused  by  speculation  and  losses.  The  Board  is  per- 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION       201 

haps  more  wide  awake  to  the  evils  of  speculation  that  the 
ordinary  citizen  is.  And  it  is  to  the  self-interest  of  the 
Board  to  eliminate,  so  far  as  possible,  the  evils  of  specula- 
tion. The  past  history  of  the  Board  shows  that  in  every 
case  of  a  clear-cut  issue  of  reform,  the  majority  of  the  mem- 
bers have  supported  the  reform.  The  past  history  also  shows 
that  the  " black  sheep"  of  the  flock  have  met  with  punish- 
ment— either  suspension  or  expulsion.  Some  writers  and 
speakers  judge  the  Board  of  Trade  only  by  the  black  sheep 
of  the  institution.  It  would  be  just  as  unfair  a  thing  to  judge 
our  other  social  institutions  in  the  same  way — to  measure 
the  medical  profession  by  the  quack  doctor;  the  legal  pro- 
fession by  the  shyster  lawyer;  the  bench  by  the  venal  judge; 
the  church  by  the  faithless  priest;  the  family  by  the  divorce 
court;  the  State  by  the  graft  in  politics;  the  school  by  the 
educated  failures  in  life.  We  do  not  judge  the  school,  the 
state,  the  family,  the  church,  by  these  standards.  We  allow 
for  a  certain  margin  of  imperfection. 

(m)  Constructive  Reforms. — If  we  may  judge  by  Ger- 
many's experience,  an  attempt  to  "eliminate  speculation" 
must  fail.  Repressive  laws  do  not  eradicate  it  or  improve  it. 

The  evolution  of  our  industrial  system  has  been  inter- 
woven with  speculation.  No  one  can  forecast  the  future. 
Three  things  might  lessen  the  amount  of  speculation  in 
grains.  The  abolition  of  the  credit  system  would  doubtless 
eliminate  one  class  of  risks,  but  at  what  cost  no  one  can  say. 
If  farmers  would  market  1/52  part  of  their  crop  each  week,  it 
would  largely  abolish  the  job  of  the  common  pit  speculator, 
the  farmer  in  this  case  becoming  his  own  speculator.  Or,  in 
the  third  place,  the  future  may  bring  such  a  development  of 
collective  bargaining  that  prices  will  be  set  in  this  manner  for 
six  months  or  a  year  at  a  time.  This  would  stabilize  prices, 


202   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

and  if  conducted  with  due  regard  to  the  consumer's  interests, 
would  be  a  large  step  in  lessening  speculation  in  the  grain 
trade.  But  since  grains  are  world  crops,  and  are  sold  on 
world  markets,  the  prices  of  grain  in  America  would  of 
necessity  bear  some  relation  to  crop  and  price  conditions  in 
other  lands. 

The  United  States  Grain  Corporation  "stabilized"  the 
price  of  wheat  during  the  war,  by  buying  it  at  the  fixed  price 
of  $2.26  a  bushel  (contract  grade).  However,  finding  the 
demand  strong,  the  government  itself  became  a  speculator, 
selling  out  the  cash  wheat  at  a  higher  price,  and  realizing  a 
net  profit  on  the  first  year's  speculation  of  over  $23,000,000. 
To  "stabilize"  price  without  "stabilizing"  both  production 
and  consumption  is  impossible  for  any  length  of  time. 

Program  of  Reform. — Recognizing  that  there  are  serious 
evils  connected  with  the  abuse  of  speculation,  we  may  sug- 
gest three  measures  of  reform: 

(1)  Education. — The  whole  subject  of  investing  money 
being  one  in  which  most  people  are  "economic  illiterates," 
the  first  need  in  this  field  is  a  scheme  of  education  that  will 
teach  the  fundamental  principles  of  this  subject.  Now  that 
the  various  Liberty  Loans  have  familiarized  some  ten  or 
twelve  million  persons  with  buying  securities,  who  previ- 
ously had  no  first-hand  knowledge  of  bonds  or  stocks,  the 
time  is  ripe  to  interest  people  in  the  subject  of  good  and  bad 
investments.  The  very  slender  chance  the  amateur  spec- 
ulator has  should  be  taught,  in  season  and  out  of  season. 
Several  heads  of  large  speculative  houses  never  make  a  spec- 
ulative trade  themselves!  They  know  the  subject  too  inti- 
mately. It  is  a  theory  of  our  government  that  the  individual 
is  not  to  be  coddled  and  protected  too  much — as  some  pater- 
nal governments  have  unsuccessfully  tried  to  do — but  that 


THE    CHICAGO    BOARD    OF    TRADE    AND    SPECULATION      203 

he  is  to  be  educated  to  stand  on  his  own  feet, — with  the 
choice  before  him  of  going  up  or  going  down.  Therefore, 
if  the  individual  be  taught  that  90  per  cent  of  the  amateur 
speculators  fail  (according  to  tradition),  and  what  is  the 
difference  between  sound  and  unsound  investments,  he  has 
reached  the  point  where  he  must  make  his  own  choice,  in 
Biblical  phrase,  " between  good  and  evil."  A  successful 
program  of  education  would  no  doubt  lessen  speculation  by 
the  unfit. 

(2)  Government. — The  government's  supervision  over 
national  banks  suggests  one  method  of  government  "regula- 
tion" of  the  grain  exchanges.  National  banks  are  inspected 
once  a  year,  and  report  certain  facts  as  to  their  condition  five 
times  a  year.  Since  the  individual  member  of  the  Board*  of 
Trade  is  acting  as  agent  for  his  customers,  handling  their 
trades,  their  grain  and  their  money,  his  business  has  ceased 
to  be  a  purely  private  one.  The  fiduciary  relationship  is 
paramount.  The  grain  market  is  a  matter  of  public  concern. 
Surely  public  policy  would  justify  a  certain  amount  of 
government  inspection.  The  program  the  writer  has  in 
mind  is  simply  this.  Let  the  federal  government  at  least 
once  a  year  inspect  the  books  and  records  of  every  firm  trad- 
ing in  futures  for  its  customers,  in  order  to  determine  the 
financial  status  of  that  firm,  particularly  whether  or  not  it  is 
solvent.  When  a  bank  is  insolvent,  it  must  cease  receiving 
deposits.  Yet  it  is  a  fact  that  there  have  been  firms  on  the 
Board  of  Trade  which  were  insolvent,  and  yet  continued  to 
do  business  for  the  public,  for  some  time,  be*fore  the  state  of 
their  affairs  became  known.  Insolvencies  come  from  two 
sources — speculation  by  the  firm  itself,  and  "bad  debts"  of 
the  customers  of  the  firm — customers  in  many  cases  who 
were  unfit  to  speculate.  A  system  of  inspection  of  this  kind 


204   SPECULATION  AND  THE  CHICAGO  BOARD  OF  TRADE 

would  surely  make  the  firm  more  careful  in  taking  on  new 
customers,  and  in  extending  credit  to  customers.  The 
present  credit  system  makes  speculation  easier  for  custom- 
ers. The  spirit  of  the  times  demands  that  speculation  be 
made  .harder,  not  easier  for  the  public.  A  government 
inspection  of  the  kind  outlined  would  perform  a  service  for 
the  Board  of  Trade  which  it  is  unable  to  do  for  itself.  The 
members  of  the  Board,  being  competitors  in  business,  are  not 
in  a  position  to  inspect  the  books  of  one  another.  Hence 
some  independent,  disinterested  authority  must  do  this,  if  it 
is  done  at  all. 

Firms  which  were  found  to  be  insolvent  should  be  wound 
up  at  once.  As  to  the  "bad  debts"  on  the  books  of  solvent 
members,  the  writer  has  no  set  plan  in  mind  for  handling 
this  matter.  The  government  might  publish  an  annual  re- 
port, lumping  together  in  one  item,  the  total  amount  of  these 
bad  debts,  without  making  public  the  names  of  the  firms 
involved. 

To  carry  out  a  program  of  this  kind,  the  government 
would  need  to  employ  expert  accountants,  versed  in  Board  of 
Trade  bookkeeping,  and  these  accountants  would  devote 
their  entire  time  to  future  trading  accounts  on  the  four  or 
five  exchanges  where  future  trading  is  conducted. 

In  addition  to  one  annual  inspection,  each  firm  should 
make,  like  the  banks,  five  short  reports  on  forms  prescribed, 
which  would  reveal  the  condition  of  solvency  or  insolvency  of 
the  firm. 

A  reform  of  this  kind  would  in  no  way  affect  the  legitimate 
speculator,  the  man  of  means  who  has  a  market  opinion 
which  he  is  ready  to  back  up  with  his  money. 

It  would,  in  the  opinion  of  the  writer,  eliminate  from  the 
firm's  books  a  great  many  doubtful  and  frankly  unfit  specu- 


THE    CHICAGO    BOARD    OF   TRADE    AND    SPECULATION       205 

lators.  It  would  dignify  the  business,  and  put  it  on  a  little 
higher  plane  than  it  is  now. 

And  last,  but  not  least,  the  remedy  is  a  very  simple  one. 

(3)  Board  of  Trade.— The  Board  of  Trade,  in  the  opinion 
of  the  writer  has  within  its  power  the  means  of  curing  most 
of  the  evils  arising  from  the  abuse  of  speculation  in  grain 
futures.  The  Board  has  constantly  fought  abuses  and  de- 
vised remedies  to  fit  the  needs  in  the  past,  largely  as  a  matter 
of  self-interest.  The  Board  of  Trade  is,  however,  very 
sensitive  to  public  opinion,  and  does  make  rules  from  time 
to  time  which  are  dictated  more  by  a  decent  respect  to  public 
opinion  than  by  self-interest.  It  is  a  notable  fact  that 
certain  prominent  firms  on  the  Board  of  Trade  which  once 
derived  their  income  almost  entirely  from  the  trade  of  specu- 
lators now  have  important  cash  grain  departments.  As  a 
definite  program  of  reform,  however,  the  writer  would  sug- 
gest four  things:  (1)  Greater  care  and  scrutiny  should  be 
exercised  in  admitting  new  members,  to  the  end  that  those 
not  worthy  of  the  dignified  name  of  grain  merchants  would 
be  kept  out.  (2)  Stricter  rules  should  be  adopted  and  en- 
forced concerning  the  taking  on  of  new  customers  for 
future  trading.  The  data  concerning  the  customer's  occupa- 
tion and  financial  standing  should  be  verified  before  he  is 
put  on  the  books  as  a  customer.  No  person  holding  any 
position  of  trust  whatsoever  should  be  accepted  as  a  cus- 
tomer. (3)  A  little  closer  censorship  should  be  kept  on  the 
market  news  letters  sent  out  daily  by  speculative  houses,  to 
the  end  that  no  "tips"  or  temptations  to  speculate  be  in- 
cluded in  such  letters.  (4)  Wire  houses  having  branch 
offices  in  small  towns  should  be  doubly  cautious  about 
developing  trade  of  a  purely  speculative  nature  among  the 
"unfit  speculators."  The  rapid  spread  of  wire  house  offices 


206      SPECULATION   AND    THE    CHICAGO    BOARD    OF    TRADE 

into  the  country  districts  of  the  grain  belt  is  justified  only  on 
the  grounds  that  the  wire  house  is  offering  the  country  grain 
trade  a  " superior  service" — a  thing,  oddly  enough,  which  its 
competitors  accuse  it  of  doing. 

It  seems  to  the  writer  that  most  of  the  hope  of  curing 
the  evils  of  organized  speculation  must  of  necessity  be  placed 
in  the  organized  exchange  itself.  The  situation  may  be  com- 
pared to  city  government,  with  its  good  and  its  bad  features. 
It  has  been  truly  said  that  gambling  or  any  other  form  of 
vice  cannot  exist  twenty-four  hours  in  the  city  without  the 
police  knowing  it.  If  it  continues  to  exist  after  that,  it  is  by 
the  sufferance  of  the  police.  And  similarly,  it  may  be  just 
as  truthfully  said  of  the  Board  of  Trade  that  manipulation  of 
the  market,  crooked  dealings,  uncommercial  conduct,  etc., 
cannot  go  on  very  long  without  the  Directors,  sooner  or 
later,  knowing  about  it.  And  whether  the  practice  be  stopped 
instantly  upon  discovery  or  be  permitted  to  continue  is 
wholly  within  the  hands  of  the  Directors.  Almost  every  day 
some  petty  squabble  or  complaint  comes  to  their  attention 
and  is  settled.  It  has  happened  (and  not  rarely)  that  some 
member  has  fallen  into  habits  that  are  not  up  to  the  com- 
mercial code,  and  such  member  has  been  quietly  "re- 
quested" by  a  Director  to  sell  out  his  membership.  Such  a 
member  always  quits,  to  avoid  the  scandal  of  a  trial  and  ex- 
pulsion, and  to  save  the  value  of  his  membership.  It  some- 
times happens,  too,  that  members  of  great  power  and  prom- 
inence are  disciplined,  and  even  suspended  or  expelled. 
Members  who  have  belonged  to  the  Board  of  Trade  for  fifty 
years  or  more — and  there  are  several  of  them  in  business  on 
the  Board  yet — testify  to  the  high  standard  of  men  generally 
chosen  to  the  Directorate.  It  is  therefore  to  this  Directorate 
of  eighteen  men  that  we  must  look  in  the  last  analysis,  for 


THE    CHICAGO    BOARD    OF   TRADE    AND     SPECULATION     207 

such  sa,no  and  wholesome  changes,  improvements,  and  re- 
forms as  aro  needed. 

(n)  Summary  on  Speculation. — There  is  a  saying  that 
fire  and  water  are  good  servants  but  bad  masters.  To  a 
much  milder  degree,  it  may  be  said  that  speculation  is  a  good 
servant  but  a  bad  master.  It  is  potent  for  evil,  or  it  is  benef- 
icent, depending  on  how  it  is  used.  It  cannot  be  eliminated. 
It  can  be  checked.  To  a  certain  extent  it  can  be  directed 
into  useful  channels.  By  whom  shall  it  be  checked  and 
directed?  The  government  can  help  check  it  by  a  system  of 
inspection  and  publicity.  The  Board  of  Trade  itself  has 
l)oth  the  necessary  information  and  power  for  both  checking 
speculation  and  directing  it  into  useful  channels.  Under 
Board  of  Trade  rules,  speculation  is  organized — conducted 
according  to  fixed  rules,  out  in  the  open,  in  the  full  light  of 
day,  and  each  transaction  is  given  its  proper  weight  in  in- 
fluencing prices.  Speculation  is  put  to  work,  helping  market 
and  finance  the  grain  crops  of  the  country  on  a  lower  margin 
than  would  be  possible  without  the  help  of  the  speculator. 

During  the  World  War  the  United  States  Food  Adminis- 
tration decided  at  different  times  that  certain  restrictions 
should  be  put  on  grain  speculation.  The  decisions  were 
communicated  to  the  Directors  of  the  Board  of  Trade. 
Immediately,  in  every  case,  the  requested  restriction  was  put 
into  effect.  Thus  did  the  Board  of  Trade  demonstrate  its 
ability  to  check  and  control  speculation  in  a  manner  which  a 
war  emergency  seemed  for  the  moment  to  justify.  It  did 
not  seem  advisable  to  the  Food  Administration  at  any  time 
to  request  that  speculation  be  entirely  stopped.  In  other 
words,  it  was  recognized  that  speculation  is  part  of  the 
machinery  for  cheaply  handling  the  grain  crop  between 
producer  and  consumer. 


208      SPECULATION    AND   THE    CHICAGO    BOARD    OF    TRADE 

All  men  speculate..  They  may  condemn  speculation  in 
others,  but  they  themselves  speculate  in  something — in 
town  lots,  or  Florida  lands,  or  fruit  orchards,  or  farm  lands, 
or  oil  wells,  or  gold  mines,  or  in  something  else.  The  fact  re- 
mains that  every  normal  man  speculates. 

Most  forms  of  speculation  are  inconsequential  and  lead 
nowhither.  They  are  simply  dissipated  in  the  economic  life 
of  our  society. 

Organized  speculation  is  power.  It  is  liable  to  abuse.  As 
Chief  Justice  Marshall  said,  all  power  is  liable  to  abuse. 
And  one  colonial  governor  of  Virginia  made  himself  famous 
for  publicly  thanking  "God  that  there  are  no  free  schools  or 
printing  presses  in  Virginia. "  His  statement  continued  that 
schools  and  printing  presses  make  the  people  read  and  know 
and  thus  these  people  might  come  to  have  a  power  which 
they  might  turn  against  their  kingly  government.  And  so 
they  did.  They  used  their  power  wisely.  The  organized 
exchanges  use  the  power  of  organized  speculation  in  conduct- 
ing the  grain  markets  of  the  world.  The  fundamental 
question  is,  do  they  abuse  this  power  or  do  they  use  it  wisely? 
In  the  opinion  of  the  writer,  the  abuse  of  this  power  is  local, 
temporary,  and  incidental:  the  wise  use  of  this  power  is  the 
general,  and  characteristic  practice  of  the  exchanges. 


APPENDIX  I 


World's  Wheat  Harvest,  Total  Crop  and  Amount  of  Wheat  Im- 
ported or  Exported  by  Various  Countries 


Month 
Jan. 

Feb. 
Mar. 

Countries  harvesting 
wheat 
Australian    and    New 
Zealand  
Chili  
Argentina  —  continued. 
Upper  Egypt  
Lower  Egypt. 
India.  .  .  . 

Au.  crop 

.  140,000,000 
.   20,000,000 

.   40,000,000 
325,000,000 

Surplus 
exported 

50,000,000 
3,000,000 

10,000,000 
55,000,000 

Imported 

Apr. 

Syria,    Cyprus,    Persia, 
Asia  Minor  
Arabia  
Mexico  

.  150,000,000 
.    10,000,000 

10,000,000 

May 

Cuba  
Algeria  and  Tunis  
China  

40,000,000 

500,000 
1,000,000 

June 

Japan  
United  States  
Greece. 

.  28,000,000 
.750,000,000 
6000000 

150,000,000 

3,000,000 
7000000 

Italy  
Spain 

.  175,000,000 
.  150,000,000 

53,000,000 
4,000,000 

Portugal  

.     8,000,000 

3,000,000 

France  

.300,000,000 

40,000,000 

Jugo-Slavia 

.  20,000,000 

5,000,000 

July 

U.  S.  and  France,  con- 
tinued. 
Roumania        .  . 

80,000,000 

52,000,000 

Bulgaria  , 

,  40,000,000 

10,000,000 

209 

210 


APPENDIX 


July      Austria 40,000,000  } 

Hungary 200,000,000  J    l>(m>™ 

Serbia 10,000,000 

Russia  ami  Siberia 850,000,000     l.r>0,0<)(),000 

Germany 150,000,000  70,000,000 

Switzerland 4,000,000  19,000,000 

England  (United  King- 
dom)     60,000,000  220,000,000 

Czecho-Slovaka 10,000,000 

Aug.    U.  S.  and  Russia,  con- 
tinued. 

Belgium 8,000,000  51,000,000 

Luxemburg 500,000 

Holland 4,000,000  23,000,000 

Denmark 0,000,000  7,000,000 

Poland 10,000,000 

Colombia 1,000,000 

Sept.     Canada 200,000,000     100,000,000 

Sweden 9,000,000  7,000,000 

Norway 350,000 

Oct.      Canada — continued. 

Nov.     Brazil 20,000,000 

Peru 2,000,000 

South  Africa 6,000,000  7,000,000 

Dec.      Uruguay 10,000,000        2,000,000 

Argentina 175,000,000       95,000,000 

Burmah 200,000 


4,038,050,000     693,000,000     535,500,000 

Note.  Persons  familiar  with  the  grain  trade,  particularly  the  wheat 
and  corn  market,  always  take  into  consideration  the  crop  of  our  prin- 
cipal competitors.  Conversely,  growers  in  competitive  areas  such  as 
Argentina,  are  much  interested  in  the  size  of  the  American  crop.  A 
good  illustration  of  this  fact  is  found  in  the  Argentina  wheat  crisis  of 
1916,  following  America's  bumper  crop  of  a  billion  bushels  in  1915. 
The  story  is  told  in  our  official  consular  reports  as  follows: 


APPENDIX 


211 


Investigation  of  Grain  Markets  in  Argentina 

The  Argentine  Government  recently  appointed  a  commission  to 
make  an  investigation  of  grain  markets,  with  a  view  to  protecting 
the  interests  of  domestic  growers  and  shippers.  The  report  of  the 
commission,  as  quoted  in  a  recent  number  of  the  Revista  Finan- 
ciera  y  Commercial,  showed  that  the  present  low  price  of  wheat  in 
Argentina  is  due  chiefly  to  the  extraordinarily  large  world  produc- 
tion of  wheat  in  the  1915-1916  crop  year.  North  America  alone  is 
able  to  supply  nearly  all  the  wheat  needed  in  Europe,  and  the 
difference  in  freight  does  not  permit  Argentina  to  compete  ad- 
vantageously in  this  trade.  The  present  wheat  supply  in  Argentina 
is  estimated  at  1,500,000  tons  (50,000,000  bu.),  which  is  gradually 
being  marketed.  Daily  Commerce  Reports,  Sept.  7,  1916,  p.  903. 


APPENDIX  2 

Wheat:  Production  and  Farm  Value  in  the  United  States 

1866-1915 
Average  farm  price  per  bushel  December  1 

(Yearbook  of  the  Department  of  Agriculture,  1915) 


Year 

Bushels 

Price 

1866 

152,000,000 

152.7 

1867 

212,441,000 

145.2 

1868 

224,037,000 

108.5 

1869 

287,746,000 

76.5 

1870 

235,885,000 

94.4 

1871 

230,722,000 

114.5 

1872 

249,997,000 

111.4 

1873 

281,255,000 

106.9 

1874 

308,103,000 

86.3 

1875 

292,136,000 

89.5 

1876 

289,356,000 

97.0 

year 

Bushels 

Price 

1890 

399,262,000 

83.8 

1891 

611,781,000 

83.9 

1892 

515,947,000 

62.4 

1893 

396,132,000 

53.8 

1894 

460,267,000 

49.1 

1895 

467,103,000 

50.9 

1896 

427,684,000 

72.6 

1897 

530,149,000 

80.8 

1898 

675,149,000 

58.2 

1899 

658,534,000 

58.4 

1900        522,320,000        61.9 


212 


AI'I'KXDIX 


Year 

1877 
1878 
1879 


Bushels 
364,194,000 
420,122,000 
459,483,000 


Price 
105.7 

77.6 
110.8 


1880 

498,550,000 

95.1 

1881 

383,280,000 

119.2 

1882 

504,185,000 

88.4 

1883* 

421,086,000 

91.1 

1884 

512,765,000 

64.5 

1885 

357,112,000 

77.1 

1886 

457,218,000 

68.7 

1887 

456,329,000 

68.1 

1888 

415,868,000 

92.6 

1889 

468,374,000 

69.8 

Year 

Bushels 

l*rUv 

1901 

748,460,000 

62.4 

1902 

670,063,000 

63.0 

1903 

637,822,000 

69.5 

1904 

552,400,000 

92.4 

1905 

692,979,000 

74.8 

1906 

735,261,000 

66.7 

1907 

634,087,000 

87.4 

1908 

664,602,000 

92.8 

1909 

683,366,000 

98.6 

1910 
1911 
1912 
1913 
1914 
1915 


635,121,000 
621,338,000 
730,267,000 
763,380,000 
891,017,000 
1,025,801,000 


88.3 
87.4 
76.0 
76.9 
98.6 
91.9 


Note.  With  the  exception  of  years  influenced  by  financial  panics  and 
by  wars,  the  price  of  wheat  in  the  above  table  is  seep  to  fall  with  increase 
in  yield,  and  to  rise  with  fall  in  yield.  In  other  words,  the  basic  law  of 
supply  and  demand  is  not  violated. 


APPENDIX  3 
Prices  on  Chicago  Board  of  Trade 

Wheat 
Price  Fluctuations  in  Relation  to  Supply  and  Demand 

By  Crop  Years  /or  Ten  Normal  Years,  1905-1914 

The  factors  influencing  price  are  supply  and  demand.  "Supply" 
is  measured  largely  by  (1)  world  crop;  (2)  United  States  crop; 
(3)  Visible  supply  in  the  United  States.  " Demand"  is  supposed  to 
increase  in  about  the  same  ratio  as  population  increases;  However, 


API'KNDIX 


213 


serious  events  such  as  strikes,  riots,  panics,  food  boycotts,  embar- 
goes, war,  etc.,  influence  the  demand  side  of  the  market.  Price  also 
varies  with  value  of  money. 

The  following  figures  show  how  closely  the  Chicago  wheat  prices 
follow  the  supply  and  demand  factors  of  the  market: 

Bradstreet's 
Index  No. 


U.  S.  visible 

showing 

Av.  price  No.  2 

supply 

U.  S.  wheat 

World  wheat 

price  level 

h  inl  red  wheat, 

wheat 

crop 

crop 

(value  of 

Chicago 

000  omitted 

000  omitted 

000  omitted 

money} 

e. 

bu. 

bu. 

bu. 

190r>               100 

27,413 

092,979 

2,903,421 

8.0987 

1000                S3 

36,027 

735,261 

3,252,520 

8.4176 

1907                77 

47,305 

634,087 

3,319,072 

8.9045 

1908               90 

33,125 

664,602 

2,950,840 

8.0094 

1909             114 

28,896 

737,189 

3,093,816 

8.5153 

1910             115 

27,182 

635,121 

3,609,656 

8.9881 

1911               95 

47,800 

621,338 

3,524,824 

8.7132 

1912              99 

45,057 

730,267 

3,422,368 

9.1867 

1913             105 

52,781 

763,380 

3,704,140 

9.2076 

1914               93 

47,057 

891,017 

3,725,488 

8.9034 

Per  Capita  Consumption  of  Wheat  (Broornhali) : 


bu. 

bu. 

Argentina  

10. 

India  

0.9 

Australasia  

7.2 

Italy  

6.5 

Austria-Hungary  

5.0 

Norway  

1.6, 

Belgium  

8.6 

Portugal  

1.8 

Canada  

13.0 

Balkans  

6.0 

Denmark  .  

4.0 

Russia  

4.0 

Hgypt  

3.5 

Spain  

6.8 

France  

9.0 

Sweden  

2.7 

Germany  

3.3 

Switzerland  

.6.7 

Greece  

4.5 

United  Kingdom  

6.0 

Holland  

4.0 

United  States  

6.4 

214  APPENDIX 

In  the  above  table  it  will  be  noted  that  the  price  follows  the 
Visible,  decreasing  with  an  increase  in  Visible,  and  increasing  with  a 
decrease  in  Visible.  This  holds  true  up  to  the  years  1913  and  1914. 
We  have  large  Visible  here,  large  United  States  crops,  large  world 
crops,  and  yet  high  prices  for  wheat.  This  price  cannot  be  explained 
on  the  supply  side.  We  must  look  to  the  demand  side.  And  here  a 
factor  is  clearly  in  sight.  For  each  of  these  two  years  the  importing 
countries  of  Europe  took  over  100,000,000  bushels  in  excess  of 
their  average,  normal  requirements — a  demand  which  stiffened 
prices.  Apparently  some  countries  in  Europe  were  storing  up  wheat 
or  flour  against  the  opening  of  the  World  War  which  began  Au- 
gust 1,  1914.*  In  Chicago  heavy  buying  for  wheat  came  through 
Italy,  destined  presumably  for  Germany. 

*  Figures  for  world's  wheat  crop  are  taken  from  Broomhall's  Corn 
Trade  Year  Book,  Liverpool,  1914.  Chicago  wheat  prices  are  taken 
from  Annual  Reports  Chicago  Board  of  Trade.  The  average  price  per 
year  is  arrived  at  by  adding  the  highest  and  lowest  cash  prices  for  con- 
tract wheat,  for  each  month  in  the  year  and  dividing  the  sum  by  24. 
The  visible  supply  is  the  average  of  the  highest  and  lowest  visible  for 
each  year.  The  index  numbers  are  from  Bradstreet's,  July  12,  1919, 
p.  446. 


APPENDIX  215 

APPENDIX  4 

List  of  flour  mills  grinding  1.000  barrels  of  flour  annually  in  the 
eleven  states  tributary  to  Chicago,  and  amount  of  wheat  ground 
for  one  year. 

(U.  S.  Census  1909) 

From  the  Millers'  Almanack,  1917-1918,  p.  218 

State  No.  of  mills     Wheat  ground  in  1  year 

Minnesota 248  104,251,138  bu. 

Kansas 209  49,607,646   " 

Illinois 220  30,137,000   " 

Ohio 527  27,142,000  " 

Missouri 388  26,753,000   " 

Indiana 411  22,825,000  " 

Michigan 293  16,621,000  " 

Wisconsin 149  16,096,000  " 

Nebraska 189  10,712,000   " 

Iowa 122  6,933,000  " 

South  Dakota 72  4,685,000  " 

APPENDIX  5 

Relation  Between  Future  Price  and  Cash  Price 

When  the  future  price  is  stabilized 

(On  July  11,  1917,  the  Board  of  Directors  of  the  Chicago  Board 
of  Trade  adopted  a  resolution  prohibiting  members  from  making 
any  future  corn  contracts  for  delivery  during  any  month  of  the 
year  1918  at  a  price  in  excess  of  $1.28  per  bushel.  The  next  day  the 
Directors  made  this  same  rule  apply  to  corn  for  December,  1917, 
delivery.  These  rules  were  not  rescinded  till  April  9,  1918,  per- 
mitting contracts  for  delivery  on  and  after  June  1,  1918  to  be  made 


216 


APPENDIX 


at  market  price.  The  U.  S.  Food  Administration  desired  to  reduce 
the  price  of  corn,  and  to  this  end  asked  for  a  curtailment  of  "  specula- 
tion in  corn."  The  result  of  this  action  is  shown  below.) 

Com  prices,  cash  and  future,  Chicago  Board  of  Trade,  1917-1918 


No.  2 

Spot 

No.  2  Dec.  delivery 

Mould 

low 

high 

low           high 

July  

1773/2  to 

2.32 

108^  to  124% 

Aug  

169      " 

236 

1055/s"    1187/8 

Sept..  .  .  . 

.  195      " 

224 

111      "    1223/8 

Oct  

.  189      " 

215^ 

lll'Vs"    121 

Nov. 

.  185      " 

229 

114      "    125 

Dec  

.160       " 

190 

1217/s"   127% 

May  delivery 

Jan  

.  170     to 

185 

123%  to  126 

Feb.... 

.170      " 

180 

124^  "    127% 

Mar.  .  .  . 

.  165       " 

175 

1207/8"  127^ 

Apr  .... 

.160      " 

165 

124^  "    127^ 

May..  .  . 

.  150      " 

155 

1277/8"    1277/8' 

Upset  price  being  1.28, 
Dec.  and  later  futures 


(Trading  in  May  Con- 
tracts suspended  by 
Directors,  May  21.) 


June 150      to    165 


July 160      to    175 


Jidy  delivery 
130%  to  148% 


Nos.  3,  4)  July  de- 
livery 

146  M  to  164  (Change  in  grades  de- 
liverable on  contracts, 
owing  to  condition  of 
corn  crop.) 


The  above  table  should  be  considered  in  connection  with  the  one 
below,  showing  the  price  of  cash  corn  for  1917,  from  January  1,  up 
to  the  time  the  maximum  price  was  set  on  the  December  futures, 
namely,  July.  The  market  movement  was  tending  upward — and  so 
continued  till  the  new  crop  arrived. 


APPENDIX  217 

Corn   (Spot)   January  to  July,   1917,  Board  of  Trade,  Chicago 

Low      High 

January 93  34-103 

February 96^-102% 

March ' 102*4-122^ 

April 123    -160 

May 152    -174 

June 158    -176 

APPENDIX  6 
Private  Wire  Houses 

Members  Chicago  Board  of  Trade,  1919 

Name  Branch  Offices     Correspondents 

Armour  Grain  Company 13  7 

J.  S.  Bache  &  Company 10  1 

Bright  Sears  &  Company 1 

Bartlett  Frazier  Co 7  4 

Beach  Wickham  Grain  Company 1  5 

James  E.  Bennett  &  Company 25  13 

H.  &  B.  Beer 1  34 

N.  L.  Carpenter  &  Company 4  15 

Childs,  Kay  &  Woods 3  1 

Clark,  Childs  &  Company 2  9 

John  F.  Clark  &  Company —  20 

E.  J.  Feehery  &  Company 2  2 

Halle  &  Stiegletz 1 

Harris  Winthrop  &  Company 3       .  7 

A.  A.  Housman  &  Company —  1 

Hughes  &  Dier 7 

Hulburd,  Warren  &  Chandler 7 

E.  F.  Button 6  11 

Jackson  Brothers  Company 2  7 

Jenks,  Gwynne  &  Company 1  2 

King  Farnum  &  Company 1  1 


218  APPENDIX 

Name  Branch  Offices     Correspondents 

Lamson  Brothers  and  Company .  .  .  , 20  11 

Laidlaw  &  Company —  4 

Charles  E.  Lewis  &  Company 1 

Arthur  Lipper 1 

Logan  &  Bryan 23  86 

E.  Lowitz  &  Company 9  4 

Miller  &  Company 2  1 

S.  Mincer 2 

McDonnell  &  Company 1 

Orthwein-Matchette  Company 5 

Otis  &  Company 5 

Post  &  Flagg —  12 

Pynchon  &  Company 1 

J.  Rosenbaum  Grain  Company 1 

E.  C.  Randolph 5  13 

Sawers  Grain  Company 6 

Shearson,  Hammill  Company 6  7 

Simons  Day  &  Company 12  9 

Shaffer  &  Stream 5 

Strandberg,  McGreevy  &  Company 4 

Thompson  &  McKinnon 6  38 

Trans-Mississippi  Grain  Company 3 

Updike  Grain  Company —  9 

Gardner  B.  Van  Ness  Company 11 

M.  L.  Vehon  Company 1 

E.  W.  Wagner  &  Company 31  20 

Ware&Leland.  .  12  13 


APPENDIX 


219 


APPENDIX  7 

Wheat  Price  Fluctuations  (1)  Before  Grain  Exchanges  were  estab- 
lished, and  (2)  After  Grain  Exchanges  were  established.  For 
100-year  period 


Prices    of  Wheat  at  Albany  for  60  years, 
1793-1852 


The  following  table,  showing  the  price  of 
wheat  per  bushel  at  Albany,  New  York,  on  the 
first  day  of  January  in  each  year,  from  1793  to 
1852,  has  been  prepared  from  tables  kept  at  the 
office  of  the  Van  Rennselaer  Manor  at  Albany 
(Hunt's  Merchants'  Magazine,  Vol.  XXXI, 
p.  109): 


1793-$0.75 

1813-S2  .  25 

1833-$!.  25 

1794-  1.00 

1814-  1.87^ 

1834—1.00 

1795-  1.37^ 

1815-  1.623^ 

1835-  1.00 

1796-  2.00 

1816-  1.75 

1836-  1.50 

1797-  1.50 

1817-  2.25 

1837-  2.25 

1798-  1.25 

1818-  1.873^ 

1838-  1.62^ 

1799-  1.18% 

1819-  1.75 

1839-  1.75 

1800-  1.56M 

1820-  1.00 

1840-  1.12H 

1801-  1.81M 

1821-  .75 

1841-  1.00 

1802-  1.00 

1822-  1.12K 

1842-  1.25 

1803-  1.12J4 

1823-  1.25 

1843-  1.87^ 

1804-  1.25 

1824-  1.25 

1844-  1.00 

1805-  2.00 

1825-  1.00 

1845-  .93% 

1806-  1.43% 

1826-   .87J^ 

1846-  1.18% 

1807-  1.37^ 

1827-  1.00 

1847-  1.12V6 

1808-  1.12^ 

1828-  1.00 

1848-  1.3114 

1809-  1.00 

1829-  1.75 

1849-  1.18M 

1810-  1.56J^ 

1830-  1.00 

1850-  1.18% 

1811-  1.75 

1831-  1.25 

1851-  1.12H 

1812-  1.87J^ 

1832-  1.25 

1852-  1.00 

Price  ranges,  20  years  (1793-1812) 

.75     -2.00=  1.25 

(1813-1832)  .75     -2.25=  1.50 

(1833-1852)  .93%-2.25=  1.31% 


Prices  of  Wheat,  Chicago 
Board  of  Trade,  40  years, 
1874-1913 

The  following  table,  showing 
the  price  of  No.  2  wheat, 
Chicago,  on  the  first  business 
day  of  the  year,  from  1874  to 
1913,  has  been  prepared  from 
the  Annual  Reports  of  the 
Chicago  Board  of  Trade: 


Price  ranges,  20  years  (1874- 
1893)  .  72i/8-'l.  32%  =  605/s 

(1894-1913) 


From  the  above  table  it  is  evident  that  price  fluctuations  in  wheat 
were  twice  as  large  in  amount,  before  future  trading  was  used,  as  they 
were  after  future  trading  was  used. 


220  APPENDIX 

APPENDIX  8 

Grain  Storage  in  Chicago 

(1918  Report  Chicago  Board  of  Trade) 

I.  Regular  Public  Elevators. 

Name  of  warehouse  Operated  by  Capacity,  bu. 

Armour  Elevators  A  and  B.  .  .  .Armour  Grain  Company.  .  .  1,500,000 

Armour  Elevator  C Armour  Grain  Company.  .  .  1,000,000 

Calumet  Elevator  B Central  Elevator  Co 1,000,000 

Chicago  &  St.  Louis  &  Annex .  .  .  J.  Rosenbaum  Grain  Co. ...  2,000,000 

J.  Rosenbaum  Elevator  A J.  Rosenbaum  Grain  Co. .  .  .  400,000 

J.  Rosenbaum  Elevator  B J.  Rosenbaum  Grain  Co. .  .  .  1,550,000 

Rock  Island  Elevator  A J.  Rosenbaum  Grain  Co. ...  1,250,000 

S.  Chicago  Elevator  C  &  Annex  S.  Chicago  Elevator  Co 3,000,000 


Total  Public  Storage 11,700,000 

II.  Private  Elevators. 

Name  of  warehouse  Operated  by  Capacity,  bu. 

Central Armour  Grain  Company.  .  .  1,000,000 

Chicago  &  Northwestern  Rail- 
way Terminal Armour  Grain  Company .  .  .  0,000,000 

Grand  Trunk Armour  Grain  Company .  .  .  400,000 

Minnesota Armour  Grain  Company .  .  .  750,000 

Santa  Fe Armour  Grain  Company .  .  .  ,500,000 

Union Armour  Grain  Company .  .  .  ,800,000 

Calumet  A Central  Elevator  Co ,200,000 

Calumet  C Central  Elevator  Co ,200,000 

National Central  Elevator  Co ,000,000 

New  York  Central Central  Elevator  Co ,500,000 

Irondalc J.  Rosenbaum  Grain  Co ,000,000 

J.  Rosenbaum  C J.  Rosenbaum  Grain  Co. ...  250,000 

South  Chicago  D So.  Chicago  Elevator  Co 1,500,000 

A.  Dickinson  (35  St.) A.  Dickinson  Company.  .  .  .  600,000 

Acme  Malt Acme  Malt  Company 200,000 


APPENDIX 


221 


Name  of  warehouse 
American  Linseed  Company .  . 
American  Maize 

American  Malting  Company .  . 
American  Malting  Company .  . 
American  Malting  Company .  . 

Atlantic 

B.A.EckartMill, 

Badenoch 

Bell 

Byrnes 

Calumet  Malting  Co 

Columbia  Malting  Co 

Concrete 

Edwards  El 

Hales 

Hamilton  Elevator  and  Tanks. 

Merchants  El 

Cragin 

Fleischman 

Grand  Crossing 

Haler  &  Garden 

Harvey 

Hayford 

Hirst  &  Begley 

Interstate 

Keystone 

Wabash 

Keelen  Brothers 

Matteson 

McAvoy's  Brewery 

McKenna  &  Rodgers 

Michigan  Central 

Mueller  &  Young 

Northwestern  Yeast 

Norris 

Range  &  Sons 


Operated  by  Capacity,  bu. 

.  American  Linseed  Co 200,000 

.  American    Maize    Products 

Co 100,000 

.American  Malting  Co 500,000 

.American  Malting  Co 550,000 

.American  Malting  Co 500,000 

.  Arcadia  Farms  Milling  Co. .  .  50,000 

.  B.  A.  Eckhart  Milling  Co ...  1,000,000 

.  J.  J.  Badenoch  Company! .  . .  350,000 

.Rosenbaum  Brothers 1,500,000 

.  W.  J.  Byrnes  &  Company  40,000 

.Calumet  Malting  Co 420,000 

.Columbia  Malting  Co 1,000,000 

.Hales  &  Edwards  Co 1,500,000 

.  Hales  &  Edwards  Co 20,000 

.Hales  &  Edwards  Co 1,000,000 

.  Hales  &  Edwards  Co 500,000 

.  Hales  &  Edwards  Co 20,000 

.F.  J.  Delany 600,000 

.Fleischman  Malting  Co 1,000,000 

.F.G.Ely 60,000 

.  Brooks  Elevator  Co 550,000 

.  Harvey  Grain  Company. .  . .  270,000 

.  Frank  Marshall 100,000 

.Hirst  &  Begley  Linseed  Co..  75,000 

.Quaker  Oats  Company 775,000 

.E.  R.  Bacon 1,500,000 

.E.  R.  Bacon 1,500,000 

.Keelen  Brothers 100,000 

.C.  L.  Daugherty  &  Co 100,000 

.McAvoy  Brewing  Co 100,000 

.  McKenna  &  Rodgers 50,000 

.  F.  H.  Mcaliff  &  Son 300,000 

.  Mueller  &  Young  Grain  Co. .  1 ,000,000 

.  Northwestern  Yeast  Co 350,000 

.  Norris  A  Company 1,000,000 

.T.  Range  &  Sons 20,000 


222  APPENDIX 

Name  of  warehouse  Operated  by  Capacity,  bu. 

Rialto Nye-Jenks  Grain  Co 1,000,000 

Rockwell W.  E.  Ellis 80,000 

Schwill  Malt  House A.  Schwill  &  Company 3,000,000 

Seipps  Brewery Seipp  Brewing  Company .  .  .  325,000 

Standard  Brewery Standard  Brewing  Co 100,000 

Standard Taylor  &  Bournique  Co 400,000 

Star  &  Crescent Star  &  Crescent  Milling  Co. .  500,000 

U.  S.  Brewery.. U.  S.  Brewing  Company 100,000 


Total  Private 45,605,000 

Total  Public 11,700,000 


Total  Chicago 57,375,000 

APPENDIX  9 

Price  Fluctuations  Due  to  Unforeseen  Causes,  at  Times 

Odd  Example,  "horse  disease"  1872 

In  October,  1872,  it  was  announced  in  Chicago  that  further 
eastern  grain  shipments  on  Erie  Canal  would  likely  be  embargoed 
due  to  the  prevalence  of  a  so-called  "horse  disease."  Hundreds  of 
eastern  horses  were  dying  daily,  according  to  reports.  Very  soon 
the  canal  traffic  was  almost  suspended.  By  the  31st  of  the  month 
the  spread  of  the  epidemic  had  affected  the  markets  and  prices  of 
grain  and  other  produce  went  down.  The  "horse  disease"  spread 
rapidly,  the  wholesale  business  of  Boston  being  practically  sus- 
pended, and  New  York's  business  suffering  severely.  By  the  first  of 
November*  the  disease  had  spread  to  Chicago,  and  street  cars, 
omnibuses,  and  coal  wagons  were  stopped.  All  horses  for  towing 
were  taken  off  the  Illinois  &  Michigan  Canal.  Some  ox  teams  were 
put  on.  While  the  horse  disease  was  raging  for  a  few  weeks,  the 
business  of  the  country  was  almost  completely  paralyzed. 


APPENDIX 


223 


APPENDIX  10 

CORN 

Closing  Prices  of 

Spot  Com   (No.   2 

Mixed)  Chicago, 

May  1, 

1919,  to  September  30,  1919 

May    1  164    -165 

June    2  175    -176 

July    1  180    -181 

2  167    -168 

3  176    -177 

2  183    -184 

3  170)4-171 

4  175%-176% 

3  186    -187 

5  175    -176 

5  166^-167 

6  174    -175 

4189    -1SQ% 

6  170)4-171 

7  172    -173 

8  192     -193 

7  169    -170 

9  197     -198 

8170    -171 

9172    -172% 

10  195    -195% 

9  174    -175 

10172    -172% 

11  191     -192 

10174    -175 

11  171     -171% 

12  194    -195 

12173    -173^ 

12  181     -182 

13175    -176 

14  193    -194 

13  179    -180 

14  175    -176 

15  192    -193 

14  175    -177 

16193    -194 

15  176    -177 

16178    -178^ 

17  193     -194 

16  176    -177 

17  177    -177% 

18  190    -191 

17  175    -176 

18  181    -182 

19  1W%-191% 

19  m%-m% 

19  176    -176^ 

20  183%-184% 

21  19334-194 

20  177    -178 

21  182    -183 

22195    -196 

21  181     -183 

23  195    -197 

22  182    -183 

23  182    -183 

24  196    -197 

23  181     -182 

24  180    -181 

25197    -198 

24  179    -180 

25  180    -181 

26  196    -197 

26  17934-1803^ 

26178    -179 

27  17$%-m% 

28198    -200 

27  180%-1S1% 

28  176%-177% 

29  199    -200 

28  181     -182 

30  200    -201 

29  175    -176 

30  17734-1783^ 

31200    -201 

31  174    -176 

224 


APPENDIX 


August 


1  197-198 

2  196-198 

4  190-192 

5  182-184 

6  190-192 

7  194-196 

8  198-200 

9  201-203 

11  202-204 

12  202-204 

13  203-205 

14  200-202 

15  198-199 

16  198-199 

18  193-195 

19  195-196 

20  196-198 

21  197-198 

22  197-198 

23  194-196 

25  193-194 

26  193-194 

27  192-193 

28  187-188 

29  184-185 

30  183 


September 


1  Labor  Day 

2  177     -179 

3  173    -174 

4  165^-166 
5166    -166^ 
6  167    -167^ 


8  166 

9  163 
10 

11  156 

12  146 


-164 


-147 


13  129  J4-  140 


15  136 

-137 

16  140; 

'  2-141  ?.j 

17  145 

-146 

18  147 

-148 

19  148 

-149 

20 

22  149 

-149^ 

23  1.54 

-156 

24  155 

-156 

25  149 

-150 

26  143 

-144 

27  142 

-143 

29  14U 

30 

APPENDIX  225 

APPENDIX  11 
Market  News  Restrictions 

Board  of  Trade  of  the  City  of  Chicago, 
Secretary's  Office. 

Bulletin  No.  49 
(1919) 

Chicago,  March  15,  1919. 
To  Members: 

Your  attention  is  called  to  the  following  notice  sent  out  by  the 
Directory  in  1910;  and  the  Executive  Officers  ask  that  you  comply 
with  same  without  fail: 

Members  of  the  Board  publishing  circular  market  letters  are  re- 
quested to  send  one  of  such  letters,  in  each  case,  to  the  Secretary  of 
the  Board. 

The  Directory  on  February  23,  1915,  instructed  the  Secretary  to 
notify  all  members  of  the  Board  that,  in  disseminating  news  that 
would  tend  to  influence  the  market,  other  than  that  of  a  statistical 
nature,  they  must  be  sure  of  their  information  and  the  reliability  of 
its  source,  and  be  prepared  at  all  times  to  supply  the  Secretary  with 
their  authority  for  it.  This  is  again  called  to  your  attention. 
All  rumors  are  prohibited :  only  facts  should  be  stated. 

(Signed)  JOHN  R.  MAUFF,  Secretary. 


220  APPENDIX 

APPENDIX  12 
Regulations  of  Crop  Reporting  Methods 

Board  of  Trade  of  the  City  of  Chicago, 
Secretary's  Office. 

Bulletin,  R— 1 
(1919) 

Chicago,  April  16,  1919. 

To  Members  of  the  Clearing  House: 

The  following  action  was  reaffirmed  by  the  Directory  at  its 
regular  meeting  held  on  April  15,  1919: 

Hereafter  crop  reports  shall  be  given  publicity  only  when  compiled 
by  accredited  crop  experts;  further,  that  those  wishing  to  qualify  as 
such  experts  shall  register  their  names  in  the  Secretary's  Office  and 
be  duly  approved. 

After  such  registration  and  approval,  crop  reporters  will  be  per- 
mitted to  compile  the  results  of  their  investigations  and  make 
public,  information  relative  to  crop  conditions,  when  the  reports  are 
sufficiently  comprehensive  to  indicate  the  general  situation. 

Circulation  in  any  manner  whatsoever  by  members  of  this 
Association  of  crop  reports  from  other  sources  that  are  not  official 
will  be  a  violation  of  the  action  of  this  Directory  and  will  be  con- 
sidered a  grave  offense  against  the  good  name  of  the  Association. 

Please  give  this  all  the  publicity  possible,  so  that  it  may  be 
understood  by  every  one  connected  with  the  trade. 

(Signed)  JOHN  R.  MAUFF,  Secretary. 


APPENDIX  227 

APPENDIX  13 

Regulation  of  Future  Trading 

Board  of  Trade  of  the  City  of  Chicago, 
Secretary's  Office. 

Bulletin  No.  45 
(1918) 

Chicago,  December  26,  1918. 
To  Members: 

At  a  special  meeting  of  the  Board  of  Directors  held  this  day,  a 
telegram  from  Mr.  J.  J.  Stream,  Chief,  Coarse  Grains  Division, 
U.  S.  Food  Administration,  was  read : 

New  York,  December  24,  1918. 
John  R.  Mauff,  Secretary, 

Board  of  Trade,  Chicago. 

Grain  Exchanges  are  advised  that  on  and  after  January  1,  1919, 
they  may,  in  their  discretion,  remove  all  quantity  restrictions  on 
trading  in  future  deliveries  of  Corn,  Oats,  Rye  and  Barley.  This 
relaxation  does  not  abrogate  or  modify  any  of  the  provisions  of  the 
Food  Control  Act,  and  Grain  Exchanges  and  their  members  will 
continue  to  be  held  strictly  accountable  for  any  manipulative  prac- 
tices resulting  in  undue  depression  or  enhancement  of  grain  prices*. 

(Signed)  J.  J.  STREAM, 
Chief  Coarse  Grains,  Food  Administration. 

Be  it  therefore  Resolved,  that  on  and  after  January  1,  1919,  all 
quantity  restrictions  or  trading  in  future  deliveries  of  corn,  oats, 
rye  and  barley  be  rescinded,  and  a  copy  of  this  action  be  forwarded 
to  Mr.  Stream. 

Be  it  also  resolved,  that  the  Secretary  notify  all  members  of  this 
action  and  call  their  special  attention  to  the  last  three  lines  in  the 
telegram  from  Mr.  Stream  to  the  effect  that  members  will  continue 


228  APPENDIX 

to  be  held  strictly  accountable  for  any  manipulative  practices  re- 
sulting in  undue  depression  or  enhancement  of  grain  prices.  Tin's 
will  indicate  the  policy  of  the  Officers  of  this  Exchange  in  the  future 
handling  of  this  matter. 

(Signed)  JOHN  R.  MAUFF,  Secretary. 


APPENDIX  14 

Restrictions  on  Future  Trading 

Board  of  Trade  of  the  City  of  Chicago, 
Secretary's  Office. 

Bulletin  No.  51 
(1919) 

Chicago,  May  19,  1919. 
To  Members: 

Whereas,  under  authority  delegated  to  the  United  States  Food 
Administration  by  President  Wilson,  Mr.  Julius  H.  Barnes,  Chief 
of  the  Cereal  Division,  has  suggested  that  the  Board  of  Directors  of 
this  Association  reinstate  the  ruling  limiting  the  amount  of  open 
trades  in  corn  for  any  one  interest  or  individual  to  200,000  bushels; 
and  further, 

That  in  the  case  of  any  accounts  now  open  beyond  that  quantity, 
the  officers  make  proper  effort  to  secure  a  reduction  to  that  basis  in 
the  near  future,  and  further: 

That  cognizance  must  be  taken  of  the  fact  that  restrictions 
against  hoarding,  Section  6  of  the  Food  Control  Law,  is  in  full  force 
and  effect  until  the  existing  state  of  war  between  the  United  States 
and  Germany  shall  have  terminated,  the  fact  and  date  to  be  ascer- 
tained and  proclaimed  by  the  President  of  the  United  States;  and, 

Whereas,  the  Board  of  Directors  of  the  Board  of  Trade  consider 
the  above  suggestion  from  Mr.  Julius  H.  Barnes  as  equivalent 
to  an  order  from  the  United  States  Food  Administration,  therefore, 

Be  it  Resolved,  that  no  individual,  firm,  or  corporation,  except  for 


APPENDIX  229 

hedging  purposes,  have  or  control  any  contracts  cither  for  purchase 
or  for  sale,  calling  for  corn  for  future  delivery  in  excess  of  200,000 
bushels;  further, 

Resolved,  that  contracts  for  deferred  acceptance,  whether  daily 
or  weekly,  and  spreading  between  different  months  of  deli  very,  and 
contracts  open  during  a  session  as  well  as  between  sessions,  are  all 
included  in  these  restrictions;  further, 

Resolved,  that  contracts  entered  into  as  a  hedge  shall  be  un- 
limited in  amount,  but  not  incommensurate  with  actual  require- 
ments; and  in  determining  the  nature  of  a  hedging  contract,  the 
direct  manufactured  products  of  corn,  may  be  included,  and  hedging 
in  connection  with  the  feeding  of  live-stock  is  permissible  without 
license  and  free  of  restrictions;  further, 

Resolved,  that  contracts  nowr  open  in  excess  of  200,000  bushels 
must  show  progress  towards  adjustment  from  time  to  time  and  a 
full  compliance  therewith  on  or  before  the  close  of  the  market 
session  June  7,  1919;  further, 

Resolved,  that  any  evasion  of  these  resolutions  by  trading  in 
the  name  of  a  third  party,  or  joint  account,  or  opening  or  keeping 
an  account  not  properly  designated  by  the  legal  name  and  address  of 
the  person,  firm  or  corporation  actually  represented  thereby  is 
prohibited;  further, 

Resolved,  that  any  violation  of  the  loyal  and  patriotic  intent  of 
these  resolutions  or  failure  to  comply  with  the  written  demands  of 
the  Executive  Officers  acting  in  accordance  therewith,  shall  be 
considered  a  grave  offense  against  the  good  name  and  dignity  of  this 
Association,  and  punished  by  suspension  or  expulsion,  under  the 
provisions  of  Section  18  of  Rule  IV  of  the  rules  of  the  Board. 

By  order  of  the  Executive  Officers. 

(Signed)  JOHN  R.  MAUFF,  Secretary. 


230  APPENDIX 

APPENDIX  15 

Executing  Trades  in  the  Open  Market 

Board  of  Trade  of  the  City  of  Chicago, 
Secretary's  Office. 

Bulletin  No.  6 
(1919) 

Chicago,  July  24,  1919. 
To  Members: 

The  Secretary  was  instructed  by  the  Board  of  Directors  to  put 
before  our  membership,  by  illustration,  various  acts  that  would 
constitute  a  violation  of  the  rule  on  principal  and  agent  (section  11, 
of  Rule  IV),  reading  as  follows: 

Sec.  11.  No  member  of  this  Association  is  allowed  under  any  cir- 
cumstances to  be  both  principal  and  agent  in  any  transaction  in  any  of 
the  commodities  dealt  in  under  the  rules  of  this  Board.  Furthermore, 
no  member  of  this  Association  in  any  transaction  in  any  of  the  commod- 
ities dealt  in  under  the  rules  of  this  Board  shall  allow  himself  directly 
or  indirectly,  either  by  his  own  act  or  by  the  act  of  an  employe  or  of  a 
broker  or  other  member  of  this  Association,  to  be  placed  in  the  position 
of  agent  for  both  buyer  and  seller. 

The  Board  of  Directors  has  approved  of  the  following  in  that 
connection : 

When  a  customer  entrusts  his  order  to  a  member  of  this  Associa- 
tion for  execution,  whether  such  member,  in  his  capacity  as  agent,  is 
an  individual,  firm  or  corporation,  the  customer  is  entitled  under 
the  rules  of  this  Association  to  an  execution  in  the  open  market  and 
in  a  manner  in  which  the  agent  can  have  no  personal  interest,  either 
directly  or  indirectly,  in  whole  or  in  part. 

Therefore,  a  violation  of  section  eleven  of  Rule  IV  would  occur, 
should  a  member  of  this  Association,  whether  an  individual,  firm  or 
corporation,  while  acting  as  agent,  take  for  his  personal  account,  or 
for  the  account  of  his  firm  or  a  member  thereof,  or  his  corporation  or 


APPENDIX  231 

an  officer  thereof,  the  other  side  of  a  contract  on  an  order  entrusted 
to  him  for  execution,  whether  directly  or  indirectly,  in  whole  or  in 
part.  The  penalty  for  this  is  expulsion.  This  would  occur  whether 
the  act  was  accomplished  through  an  employe,  broker,  partner  of  a 
firm  or  officer  of  a  corporation.  This  applies  with  equal  force  to 
brokerage  firms  not  members  of  the  Clearing  House,  and  a  member 
of  any  such  firm  trading  with  his  partner,  directly  or  indirectly, 
where  one  side  of  the  contract  was  for  his  personal  account,  such 
firm  would  be  placed  in  position  of  "principal  and  agent." 

The  Board  of  Directors  also  instructed  the  Secretary  to  call 
attention  of  the  members  to  Section  8  of  Rule  IV,  reading  as  follows : 

"All  orders  received  by  any  member  of  this  Association,  firm  or 
corporation  doing  business  upon  the  Board  of  Trade  of  the  City  of 
Chicago,  to  buy  or  sell  for  future  delivery  any  of  the  articles  or 
commodities  dealt  in  upon  the  floor  of  the  Exchange  (except  when 
in  exchange  for  cash  property)  must  be  executed  in  the  open  market 
in  the  Exchange  Hall  during  the  hours  of  regular  trading,  and  under 
no  circumstances  shall  any  member,  firm  or  corporation  assume  to 
have  executed  any  of  such  orders  or  any  portion  thereof  by  taking 
tho  trades,  or  any  portion  of  any  of  them,  for  their  own  account, 
cither  directly  or  indirectly,  in  their  own  name  or  that  of  an  em- 
ploye, broker  or  other  member  of  this  Association.  Any  member 
convicted  of  violation  of  this  rule  by  the  Board  of  Directors  shall  be 
expelled. 

(Signed)  JOHN  R.  MAUFP,  Secretary. 


APPENDIX  16 

The  following  story  illustrates  how  a  small  piece  of  paper  "money" 
("credit  money,"  that  is,  a  "promise  to  pay  money")  does  the 
work  of  real  money  (gold). 

"  Mr.  Brown,  a  Kansas  gentleman,  is  the  proprietor  of  a  boarding 
house.  Around  his  table  at  a  recent  dinner  sat  his  wife,  Mrs.  Brown  ; 
the  village  milliner,  Mrs.  Andrews;  Mr.  Black,  the  baker;  Mr.  Jor- 


232  APPENDIX 

dan,  a  carpenter;  and  Mr.  Hadley,  a  flour,  feed  arid  lumber  mer- 
chant. Mr.  Brown  took  a  ten-dollar  bill  from  his  pocket  and 
handed  it  to  Mrs.  Brown,  with  the  remark  that  there  was  ten  dollars 
towards  the  twenty  he  had  promised  her.  Mrs.  Brown  handed  the 
bill  to  Mrs.  Andrews,  the  milliner,  Saying,  "  that  pays  for  my  new 
bonnet."  Mrs.  Andrews,  in  turn,  passed  it  on  to  Mr.  Jordan,  re- 
marking that  it  would  pay  for  the  carpentry  work  he  had  done  for 
her.  Mr.  Jordan  handed  it  to  Mr.  Hadley,  requesting  his  receipted 
bill  for  flour,  feed,  and  lumber.  Mr.  Hadley  gave  the  bill  back  to 
Mr.  Brown,  saying,  "that  pays  ten  dollars  on  my  board."  Mr. 
Brown  again  passed  it  to  Mrs.  Brown,  remarking  that  he  had  now 
paid  her  the  twenty  dollars  he  had  promised  her.  She  in  turn, 
paid  it  to  Mr.  Black,  to  settle  her  bread  and  pastry  account,  Mr. 
Black  handed  it  to  Mr.  Hadley,  asking  credit  for  the  amount  of  his 
flour  bill,  Mr.  Hadley  again  returning  it  to  Mr.  Brown  with  the  re- 
mark, that  it  settled  for  his  month's  board;  whereupon  Brown  put 
it  back  into  his  pocket,  observing  that  he  had  not  supposed  a  green- 
back would  go  so  far." 

A  greenback  is  not  money.  It  is  a  promise  to  pay  money.  The 
greenback  may  be  presented  to  the  United  States  Treasury  and 
exchanged  for  real  money — gold. 

The  above  story  is  quoted  from  Among  the  Hunwrislts  ami  After- 
dinner  Speakers,  Collier  &  Sons,  New  York,  1909,  p.  251. 

APPENDIX  17. 
Prices  of  Wheat  to  Producers  in  Kansas,  etc. 

(63d  Congress,  3d  Session.  House  Document  1271) 
The  following  quotation  is  the  summary  of  findings  of  this  report. 
This  investigation  of  the  grain  trade  was  made  by  the  Federal 
government  pursuant  to  House  Resolution  571  calling  for  a  report 
by  the  Department  of  Agriculture  concerning  the  prices  paid  for 
wheat  to  the  producer  in  the  State  of  Kansas,  and  the  prices  at 
which  said  wheat  was  sold  for  export  at  Kansas  City,  and  how  such 


APPENDIX  233 

prices  were  fixed  and  determined.  This  important  report  shows  that 
the  " consumer's  dollar,"  in  the  case  of  Kansas  wheat,  went  largely 
to  the  farmer. 

Summarized  statement  showing  the  spread  between  the  price 
received  by  a  farmer  in  southern  Kansas  on  Sept.  28,  1914,  and  the 
price  received  by  an  exporter  for  wheat  to  be  delivered  at  Liverpool, 
together  with  the  various  elements  of  marketing  costs. 

Cents  per  bushel 

Price  received  by  farmer  in  Kansas 87 . 0 

Margin  taken  by  country  elevator 3.0 

Price  paid  country  elevator  by  shipper 90 . 0 

Freight  rate  point  in  Kansas  to  Galveston 15.0 

Inspection  and  weighing  at  Galveston 25 

Gross  profit  of  shipper 1 . 25 


Price  paid  by  exporter  at  Galveston 106 . 50 

Cost  of  elevation,  loading  into  boat,  etc 1 . 25 

Freight,  Galveston  to  Liverpool 6.0  ' 

Insurance,  etc.,  in  transit 75 

Overhead  expenses  of  exporter 1.0 

Net  profit  of  exporter 1 . 25 


Price  delivered  at  Liverpool 116 . 75 

Summarized  statement  of  approximate  spread  between  Kansas 
farm  price  and  price  delivered  at  Philadelphia  on  Kansas  City 
terms,  Sept.  30,  1914. 

Cents  per  bushel 

Price  received  by  farmer  in  Kansas 87 .0 

Margin  taken  by  country  elevator 3.0 

Freight  rate  to  Kansas  City 6.2 

Inspection,  weighing,  and  interest  on  draft 25 

Commission ....  1.0 


Price  paid  by  shipper  in  Kansas  City 97 .45 


234  APPENDIX 

Freight  rate,  Kansas  City  to  Philadelphia 15.6 

Mixing  in  Kansas  City  elevator 25 

Exchange 20 

Overhead  expense  of  shipper 375 

Net  profit  of  shipper .  625 


Price  delivered  in  Philadelphia 114. 500 

SUMMARY 

1.  The  State  of  Kansas  is  fortunately  situated  for  marketing  its 
wheat  in  that  it  has  a  great  number  of  domestic  outlets  and  the 
foreign  market  via  Gulf  ports.     This  situation  leads  to  vigorous 
competition  between  grain  dealers  of  the  various  terminal  markets 
for  Kansas  wheat. 

2.  The  prices  of  wheat  paid  to  farmers  in  Kansas  are  based  largely 
upon  the  prices  in  Kansas  City,  Mo.,  and  at  the  Gulf  ports  for 
export.     From  these  basic  prices  must  be  subtracted  the  freight 
rate,  shipper's  profit,  and  other  incidental  charges  and  the  margin 
taken  out  by  the  country  elevator  to  determine  the  price  which  is 
paid  to  the  farmer.    Since  the  margins  of  profit  taken  by  the  grain 
dealers  in  the  larger  markets  are  very  small   (averaging  about 
1  cent  a  bushel),  it  appears  that  the  fanners  of  Kansas,  as  a  general 
rule,  are  obtaining  all  their  wheat  is  worth. 

3.  The  weakest  link  in  the  chain  of  marketing  Kansas  wheat  is 
the  country  elevator.    Compared  with  the  value  and  difficulty  of 
service  rendered,  the  margin  taken  by  the  country  elevator  is  per- 
haps larger  than  that  taken  by  any  other  middleman  in  the  market- 
ing of  wheat.     One  special  weakness  is  in  the  failure  to  use  the 
future  market  to  hedge  holdings.     Elevators  frequently  become 
congested  with  unhedged  stored  grain.    The  elevators,  as  a  general 
rule,  are  operated  inefficiently,  with  inadequate  accounting  sys- 
tems and  lack  a  sufficient  working  capital. 

4.  In  conspicuous  contrast  with  the  country  elevator  situation  is 
the  great  efficiency  and  highly  organized  method  of  operation  of  the 


APPENDIX  235 

terminal  grain  operators  and  the  exporters.  In  the  case  of  the  ex- 
port trade  especially  the  profits  per  bushel  are  extremely  low  con- 
sidering the  service  rendered  and  the  capital  and  risk  involved. 

5.  No  evidence  was  discovered  of  collusion  between  large  inter- 
ests to  restrain  -competition  or  to  depress  prices  in  Kansas  City. 
In  Kansas  City  86  per  cent  of  the  terminal-elevator  capacity  is  con- 
trolled by  six  firms,  but  these  firms  appear  to  be  in  competition 
with  each  other. 

6.  The  cost  of  transportation  is  by  far  the  largest  element  in  the 
cost  of  marketing  wheat.    Of  the  total  difference  between  the  farm 
price  and  the  Kansas  City  price,  freight  accounts  for  approximately 
65  per  cent.    Of  the  spread  between  the  farm  price  and  the  Liverpool 
price,  railroad  and  ocean  freights  account  for  approximately  70  per 
cent. 

APPENDIX  18 
Mixing 

The  Mixing  Problem  as  Applied  to  Butter 

The  mixing  of  grain  to  bring  it  to  the  level  of  the  official  grade  has 
nn  interesting  parallel  in  the  mixing  of  water  with  butter  to  bring 
the  butter  to  the  level  of  the  federal  standard. 

Under  our  federal  law  (Act  of  May  9,  1902)  any  butter  in  the 
manufacture  or  manipulation  of  which  any  process  or  material  is 
used  with  intent  or  effect  of  causing  the  absorption  of  abnormal 
quantities  of  moisture  is  adulterated  butter. 

The  normal  moisture  content  of  butter  (i.  e.,  the  amount  of  water 
in  the  butter)  was  apparently  set  at  16  per  cent  by  a  regulation  of 
the  Commissioner  of  Internal  Revenue  (Regulation  No.  9,  United 
States  Internal  Revenue,  p.  87). 

Hence  farmers'  cooperative  creameries  and  other  creameries  mak- 
ing butter  containing  only  12  or  13  per  cent  of  water  were  able  to 
comply  with  the  federal  standard  after  adding  three  or  four  per 


236  APPENDIX 

cent  of  water  to  their  butter.  And  with  butter  selling  at  fifty  cents  a 
pound,  it  was  of  course  profitable  to  sell  all  the  water  possible  at 
fifty  cents  a  pound. 

Dairy  scientists,  experts  in  State  Agricultural  Colleges,  State 
Department  of  Agriculture  and  others,  soon  began  to  explain  and 
commend  ways  of  "  controlling "  the  moisture  content  of  butter — 
in  other  words,  mixing  water  with  butter.  For  instance,  the  follow- 
ing may  be  mentioned  as  calling  the  attention  of  butter  makers  to 
the  moisture  content  problem.  Professor  C.  L.  Peck  in  his  book, 
Profitable  Dairying  (1906-11),  p.  114;  Professor  Charles  A.  Publow, 
Questions  and  Answers  on  Butter  Making  (1916),  pp.  30,  34,  37,  38, 
44;  Professor  Henry  Stewart,  The  Dairyman's  Manual  (1911); 
Larsen  and  White,  Dairy  Technology  (1914);  Professor  Martin  H. 
Meyer,  Butter  Making  and  Dairy  Arithmetic  (1915,  4th  edition). 
On  pages  116-117,  and  132-133  of  this  book,  Professor  Meyer  dis- 
cusses these  topics:  Controlling  moisture  in  butter;  Methods  and 
processes  by  which  the  amount  of  water  in  butter  may  be  increased 
and  retained;  How  not  to  exceed  the  legal  moisture  limit.  Professor 
John  Michels,  Creamery  Butter  Making  (1915,  8th  edition),  on 
pages  127  and  154,  shows  how  the  moisture  content  of  butter  has 
been  increased  during  the  past  few  years,  and  advises  those  butter 
makers  who  desire  to  be  on  the  safe  side  to  make  15  per  cent  their 
limit,  and  avoid  "falling  into  the  clutches  of  the  law."  Professor 
Wm.  A.  Stocking,  Manual  of  Milk  Products  (1917),  pp.  256-257, 
shows  that  by  modifying  the  methods  of  manufacture  butter  makers 
can  increase  the  water  in  their  butter  "2  or  3  per  cent,"  which 
"means  a  large  difference  in  the  money  returns  to  the  creamery." 
Professor  G.  L.  McKay,  "Some  Facts  About  Moisture  and  Its  Effect 
on  Butter"  (Hoard's  Dairyman,  Vol.  37,  p.  432,  May  25,  1906),  de- 
clared that  if  the  maker  of  butter  could  incorporate  14  or  even 
15  per  cent  of  water  and  make  a  uniform  high  grade  of  butter,  it  was 
to  his  own  and  his  patron's  interest  to  do  so.  The  State  Dairy 
Commissioner  of  Iowa  in  his  19th  annual  report  (1905)  spoke 
commendingly  of  the  dairy  work  done  at  the  State's  Agricultural 
College  at  Ames.  This  language  was  used: 


APPENDIX  237 

"The  Daiiy  Department  at  Ames  by  a  series  of  experiments  and 
investigations  showed  that  not  only  could  a  skillful  butter  maker 
make  his  overrun  almost  anything  he  desired,  but  that  certain 
butter  makers  in  successful  creameries  were  already  doing  it;  that  a 
16  per  cent  overrun  could  easily  and  legitimately  be  increased  to 
20  per  cent  or  even  25  per  cent  overrun.  That  is,  the  skillful  butter 
maker  can  make  butter  having  in  it  only  80  per  cent  of  butter  fat 
just  as  easily  and  as  certainly  as  he  can  make  butter  containing 
86  per  cent  of  butter  fat  "  (p.  13). 


APPENDIX  19 

Threatened  Corner  in  the  Malaga  Dried-Raisin  Market 
(Consul  Gaston  Smith,  Malaga,  Spain,  Oct.  15,  1919) 

An  example  of  forward  contracts  not  protected  by  any  organized 
exchange. 

The  "Union  Sindical  de  Almacenistas  de  Pasas,"  an  association 
of  dealers  and  exporters  of  Malaga  dried  raisins,  fear  financial  loss 
on  their  export  contracts.  It  appears  that  a  number  of  these  ex- 
porters have  contracted  to  supply  foreign  importers,  principally 
in  Great  Britain,  with  dried  raisins  at  a  specified  price  without 
taking  the  precaution  of  covering  their  contracts,  and  now  the  raisin 
producers  and  commission  merchants,  aware  of  these  contracts,  are 
holding  back  for  higher  prices.  It  is  said  that  certain  exporters  to 
Great  Britain  will  lose  heavily  in  filling  their  contracts. 

The  principal  exporters  to  the  United  States  have  been  inter- 
viewed and  they  report  that  all  their  contracts  will  be  promptly 
filled. 

The  raisin  production  of  this  district  is  estimated  for  1919  at 
approximately  from  1,150,000  to  1,200,000  boxes  of  22  pounds  each, 
so  there  is  no  shortage  to  justify  the  canceling  of  sales  contracts. 

The  producers  and  commission  merchants  are  not  organized,  but 


238  APPENDIX 

due  to  high  prices  received  they  have  made  such  large  profits  this 
season  that  they  can  afford  to  hold  the  remainder  of  their  products 
indefinitely.  Commerce  Reports,  No.  267,  Nov.  13,  1919,  p.  884. 


APPENDIX  20 

The  Life  of  a  Car  of  Grain  Shipped  by  a  Country  Dealer  to  Lamsoii 
Bros.  &  Co.,  No.  6  Board  of  Trade,  Chicago,  with  Documents 
Attached 

Showing  Protection  to  Shipper  when  dealing  with  member  of 
organized  Exchange. 

When  a  car  of  grain  is  loaded  at  a  country  elevator  the  shipper 
usually  informs  us  he  is  billing  the  car  by  mailing  an  advice  of  ship- 
ment (Ex.  A),  giving  the  car  number,  kind  of  grain,  stating  the 
approximate  weights,  the  amount  of  draft,  if  any,  and  possibly 
specific  disections  in  regard  to  the  handling  or  information  in  regard 
to  the  quality  of  the  grain  to  aid  us  in  making  sale  to  best  advantage 
are  given. 

Often  the  advice  of  shipment  is  neglected,  but  a  bill  of  lading 
(Ex.  B)  is  issued  by  the  railroad  agent  and  the  shipper  fills  in  the 
name  of  the  commission  merchant  to  whom  the  car  is  going,  des- 
tination, car  number,  kind  of  grain,  and  his  weights.  This  is  signed 
both  by  the  shipper  and  the  railroad  agent  and  is  forwarded  to  us 
either  direct  by  mail  or  through  a  bank  if  draft  is  made. 

As  a  rule  the  shipper  will  make  draft  (Ex.  C),  attaching  the  orig- 
inal bill  of  lading,  for  around  seventy-five  (75%)  per  cent  of  the 
value  of  the  grain  and  when  this  draft  is  presented  to  us  by  a  Chi- 
cago bank  for  collection,  we  honor  it  with  our  check. 

The  car  moves  by  local  freight  to  the  nearest  division  point, 
then  is  usually  placed  in  a  through  train  for  Chicago.  If  there  is  an 
unreasonable  delay  in  transit,  a  tracer  (Ex.  D)  is  started  in  order 
that  the  car  may  be  located  and  kept  on  its  way. 

When  the  car  arrives  in  Chicago,  a  railroad  notice  (Ex.  E)  bear- 


APPENDIX  239 

ing  our  name,  the  car  number  and  initial,  is  sent  to  the  State  Grain 
Inspection  Offices  and  the  State  Grain  samplers  are  given  the  car 
number,  so  that  official  samples  may  be  drawn  from  the  load.  The 
seal  is  broken  by  a  railroad  employee;  then  the  sampler,  using  n 
grain  trier,  draws  official  samples  from  the  different  parts  of  the 
car.  The  condition  of  the  car  itself  is  inspected  by  a  Board  of  Trade 
employee  and  a  certificate  (Ex.  F)  prepared  for  the  shipper. 

The  official  samples  from  the  car  are  taken  to  the  State  Grain 
Inspection  Offices,  where  licensed  inspectors,  using  as  a  guide  the 
federal  grade  specifications,  determine  in  which  grade  the  car  should 
be  placed.  Test  weight  per  bushel,  moisture  content,  quality  and 
color  are  all  important  factors  in  connection  with  the  grade.  An 
inspection  certificate  (Ex.  G)  in  duplicate  for  the  shipper  and 
buyer  is  furnished  by  the  State. 

After  the  grade  is  established,  part  of  the  official  sample  is  placed 
in  a  small  paper  bag  (Ex.  H),  on  which  is  written  the  car  number, 
kind  of  grain,  moisture  content,  test  weight,  and  other  details  vary- 
ing with  the  kind  of  grain;  also  the  date  of  inspection.  The  railroad 
notice,  also  carrying  details  of  the  grade,  is  placed  in  the  sample 
bag  along  with  the  grain,  and  the  bag  is  then  delivered  to  us  on  the 
Exchange  floor,  where  it  is  shown  to  different  buyers  and  finally  sold 
to  the  industry,  feed  dealer  or  warehouse  which  will  pay  the  most 
money.  If  the  car  is  inspected  before  11  A.  M.,  it  must  be  ordered 
that  day  to  avoid  car  service,  but  if  after  11  A.  M.,  it  need  not  be 
ordered  until  6  o'clock  the  next  day.  The  buyer  gives  us  a  written 
order  (Ex.  I)  and  these  directions  are  followed  in  making  out  our 
order  (Ex.  J)  to  the  railroad. 

The  bill  of  lading  is  surrendered  to  the  railroad  when  the  car  is 
ordered  and  a  receipt  (Ex.  K)  secured.  The  trade  made  on  the 
Exchange  floor  is  confirmed  by  a  check  slip  (Ex.  L),  giving  the 
details  of  the  trade,  grade,  price  and  terms  of  sale.  Some  buyers 
combine  their  order  and  confirm.  Immediately  after  the  car  is  sold 
on  the  Exchange  floor  a  wire  report  (Ex.  M)  is  sent  to  our  branch 
office  in  the  country  nearest  to  the  town  from  which  the  car  was 
shipped,  and  information  concerning  the  sale  is  'phoned  to  the 


240  APPENDIX 

country  shipper  and  details  given  him  which  may  be  of  value  in 
connection  with  grain  he  may  be  buying  from  the  farmers  that  day. 

A  letter  telling  of  the  sale  (Ex.  N)  and  a  formal  mail  confirmation 
(Ex.  0)  of  the  trade  are  also  sent  to  the  shipper. 

When  the  car  arrives  at  the  mill,  warehouse  or  elevator  of  the 
buyer,  it  is  unloaded,  the  grain  officially  weighed  under  supervision 
of  the  Board  of  Trade  Weighmaster,  and  the  next  day  a  weight 
certificate  (Ex.  P)  is  furnished  to  us  by  the  Weighmaster's  office. 
A  custodian  receipt  (Ex.  Q)  is  also  furnished  by  the  Custodian 
Department  under  the  supervision  of  the  Weighmaster  in  connec- 
tion with  grain  unloaded  at  certain  elevators  and  warehouses.  The 
buyer  cannot  dispose  of  the  grain  represented  by  the  receipt  until 
this  receipt  is  canceled. 

Our  bill  on  the  buyer  based  on  the  official  weight  certificate  and 
the  terms  of  sale  made  on  the  Exchange  floor  is  made  up  the  day 
the  weight  certificate  is  received  in  our  office,  so  that  there  may  be 
no  delay  in  making  final  returns  to  the  shipper,  and  the  bill  (Ex.  R), 
with  weight  certificate,  inspection  certificate,  custodian  receipt, 
and  bill  of  lading  receipt  attached,  is  rendered  to  the  buyer  before 
2  P.  M.  who  must,  under  the  Exchange  Rules,  pay  for  the  grain 
before  2:45  P.  M.  that  day.  On  Saturdays  the  bill  must  be  pre- 
sented by  11:20  A.  M.  and  paid  by  11:50  A.  M.  that  day. 

While  collection  is  being  made  from  the  buyer,  we  prepare  a  final 
statement,  called  an  account  sales  (Ex.  S),  on  the  grain  for  the 
shipper,  which  carries  the  shipper's  name,  date  car  is  sold,  car 
number,  official  weights,  number  of  bushels,  grade,  selling  price, 
gross  returns  as  a  credit;  then  detailed  charges,  draft,  freight  and 
freight  tax,  inspection  and  weighing  charges,  interest  on  the  draft, 
our  commission,  or  any  other  necessary  charges  against  the  ship- 
ment. The  net  amount  still  due  the  shipper  is  shown  and  a  check 
sent  to  him  with  the  account  sales,  a  copy  of  official  weight  certifi- 
cate, inspection  certificate  and  condition  certificate. 

The  outline  given  covers  the  natural  life  of  a  consignment,  but 
there  may  be  extra  difficulties  encountered.  A  car  may  be  wrecked 
in  transit,  which  will  necessitate  a  claim  against  the  railroad  com- 


APPENDIX  241 

pnny  for  the  full  value  of  the  shipment.  The  car  may  be  damaged 
in  transit  in  such  a  way  as  to  cause  a  grain  leak,  and  we  then  make 
claim  (Ex.  T)  for  the  shipper  against  the  railroad  company,  using 
as  a  basis  for  the  claim  certified  shipper's  weights  (Ex.  U),  a  car 
condition  blank,  or  information  concerning  damage  to  the  car,  and 
the  price  secured  for  the  car  when  it  was  sold.  The  grain  may  be 
injured  in  transit  by  a  leaking  roof  on  the  car  and  thus  grounds  es- 
tablished for  a  claim  against  the  carrier.  We  are  glad  to  render 
service  to  the  shipper  in  connection  with  these  claims  and  consider 
it  due  him  in  connection  with  commissions  received  from  grain 
handled. 


I 

I 

"8 

O 
O 

> 

5 

-< 

EH 
S 

£ 

S 


SoUonn  BUI  of  Liaing-Stuftirf  tan  «f  Orin  Sill  of  lallag  «pymd  J«  thi  tntinut*  Ccmm«««  Camalistoi  by  Ord»r  W«.  787 1!  JSM  27  19CS 

CHICAGO,  MILWAUKEE  &  ST.  PAUL  RAILWAY  COMPANY. 


ORDER  BILL  OF  LADING ORIGINAL. 


Shipper.  No- 
Agent*  No 


he  date'of  issue  of  this  Original  BUI  of  Ladi 


1919, 


J  at  Mid  destination,  if  on  iu  road,  ottenrise  to  feli»er  to 
of  all  or  an.T  of  *»..'     ropertjr  over  all  or  any  portion  of  said 
r,  that  every  service  to  be  performed  hereunder  shall  be  Bui 
>ytb« 

inlv 
In  writing  by  the 


a#4» 

laincd  (inci 

property.    Inspection  of  property  covered   b] 
b  indorsed  on  this  original  bill  of  lading  or  giv 

The' Rate  of  Freight  fi 


_   _  

tion,  and  as  to 
conditions,  nhe 
imaell  and  his  a 
ll  be  requir 
be  permitted  unless  pruvided  by  Uw  or  unless  pcmlssioa 


:each  panr  at  anr  time  interectvd  iu 
bether  priuled  or  written,  h«.-«ia  ooo- 
«igns. 


In 

.    .      i^  in  Cent)  jwr  ItiO  ll». 

IFSptcwi 

"*- 

H'-  

*"                    — 

Consigned  to  O 


EXHIBIT  B. — Bill  of  Lading. 


LAMSOH  BROS.  A  CO,  MAIN.  PKOVI..OM, 


QS&T  Slr:- 

The  following  car*  have  r.ot  arrived  in 
Chicago  up  to  the  prssent  writing.  Please  put  wire 
tracer  cut  on  them  and  advise  ua  last  record  fcy 
return  mall. 

Ycurs  truly, 

LAMSOH  BROS  *  00. 
-car  no.-  -contents-  -shipped 


EXHIBIT  D. — A  Tracer. 


tpns  qjiM  Apieipauiuii  paujmaj   aq  p|noqs   ODUOU   siiji 
•Sui|diufS  joj   Xpvaj   MOU  si   aDijou   utja[[nq  siqi  Xq  paiMOO 


3 


m 

;«s< 
ill 

n.«15«1ffi 

-°  Z£     fc     f!     *)     *•     FHS 

-.M«3cStSpg4F1 


* 

Sil 


LOOK  AT 

DATE  ON 

RAILROAD 

NOTICE 


QurNo. 


Grain 


Grade 


Wit 


Moiitur* 
C.nl.B« 


0(0-  /% 


EXHIBIT  H. — Paper  Bag  Containing 
Official  Sample. 


LAM  SON  BROS.  &,  CO. 


ORIGINAL 


CHICAGO, .... 

,..R.  R.  Co. 


191?.... 


INITIAL  CAI  NO.  KIND  OF  GKAIN 


It 


Please  deliver 


....R'y 


Yours  respectfully, 

LAMSON  BROS.       CO. 


TRANSIT. 


EXHIBIT  I. — Buyer's  Order  for  Car  Disposition. 


hereby  confirrrr  S&.  L  E  S  of  car  lots  of 
Grain  to  you  this  day  as  follows.  We  request 
prompt  attention  to  any  errors  in  amount,  grade, 
price  or  terms: 


CAR  NO. 


GRADE 


PRICE 


TERMS 


LAMSON    BROS. 

TNI  HUB  j.  ftlMQLCV  CO.,  CMICAOO 


EXHIBIT  L. — Confirmation  Slip  for  Checking  Accuracy  of  the  Trade. 


o 
o 


(fl        ^ 

OS  ^ 

DC      u 


o   E 

(0 


LAMSON  linos.  &  Co. 


CHICAGO 


Feo.    30,    1919. 


Cr.A  Live  Stk.   Exch., 
3*nborn,    la. 

AiiiJtuJbUt 

Gentlemen: 

When  your  oar  of  corn  #36589  arrived  today, 

Inspecting  #5  yello«,  good  quality  but  carrying  20.60  jcoisture 
near  the  limit  for  the  15  grade,  we  had  difficulty  makinr 
•ale  at  $1.43,-  a  good  pries  In  tcday'*  aarket  for  corn  with 
that  auch  molature  In  the  #5  grade,  and  we  trust  It  will  zean 
satisfactory  returns. 

The  flrit  corn  arrivals  today  brought  froa  1  to 
2o  less  than  late  figures  of  yesterday.  Eefor-  the  cloee  fur- 
ther weakness  developed  and  late  sales  *ere  full  2  to  4c  lo*er 
than  trades  made  early  la  the  iay.   After  the  decline  there 
appeared  to  be  a  better  eastern  demand  and  sales  ran-ed  as 
follows:  #3  grades  f  1.46-1.  53;  4  £r*des  11.43-1.46^;  #5  grades 
$1.41-1.44;  6  grades  |l.  39-1.  43.   In  a.  g-neral  way  prevailing 
values  appear  to  be  Justified. 


HJR  IIC 


Youra  truly, 

LAKSOH  SBO 
" 


EXHIBIT  N.— Letter  to  Country  Shipper  Telling  of  Sale  of  his  Grain. 


\ 


UNITED   STATKS   RAILROAD  ADMINISTRATION 


Standard  Form  for  Presentation  of  Loss  and  Damage  Claims. 

Approved  by  the  Interstate  Commerce  Commission,  National  Industrial  Traffic  Letfue,  and  Various  Other  Traffic  Or|inUiUjns 


_  _H  •_ 


C.B.Q.   R.R. 


1111M 


lass  IH 


^  ^  (onowio,  deseribed  sh:pment 


Bill  of  Lading  issued  by 5  .B.i. Co.;  Date  of  Bill  of  Lading ?/*9/l* _ 

Paid  Freight  Bill  (Pro)  Number_iP_TQO__ .  Original  Car  Number  and  Initi»L_J?_*M«._??'_?®_ __ 

Name  and  address  of  consignee  (Whom  shipped  to) ._ IAM3.0J__BR03.I_4  ._QP_. _ _. 

If  shipment  resigned  enroute.  state  partic,4arS:     J«JQlaIfln»_jlIJf-_JfllrlaJQ_Ifial3IliU5, 

_H.A_SO.trrHERJH  _R,R. 


W*5ML  .. 
UK LOADED 


6247Q* 
69gQO_ 

-3i?r 


LESS  l/8^jB^ 


-     99.24  W.  at  70o 


"~15ss- 


069.82 


S&4.S4 


1.  Original  bill  of  lading,  if  not  previously  surrendered  to  < 

2.  Original  paid  freight  ("eipense"Xbill. 
-     Original  Invoice  or  certined  copf 

'    liars  obtainable  in  p 

_COPI  EXPEN3K 
'iHSPECTIOa 


each  claim  a  number,  inserting 


the  space  provided  at  t 


, 

Reference  should  be  made  thereto  in  all  correspondence  pertaining  -to  this  claim. 

nanl  will  please  place  U)  befure  such  at  the  documents  mentioned  as  have  been  attached,  and  explain  under  "Remarks 
of  any  of  the  documents  called  for  in  connection  with  this  claim.     When  for  any  reason  it  is  impossible  for  claiman 


EXHIBIT  T. — Claim  against  the  Railroad  . 


02 

Ic 


O 

i 
f 


264  APPENDIX 

APPENDIX  21 

An  Argentina  Need 

There  is  no  "gambling"  in  grain  in  Argentina,  so  frequently 
denounced  in  our  Congress  and  by  the  public  in  this  country.  The 
grain  business  in  Argentina  is  in  the  hands  of  a  "  trust,"  which  pays 
its  own  price  as  a  rule  for  the  products  of  the  soil,  exacting  an 
enormous  toll  not  only  on  the  grain,  but  even  on  the  bags  which  are 
furnished  for  transporting  the  grain. 

What  the  Argentine  producer  would  like  to  have  is  a  great  Chicago 
or  Minneapolis  market  where  he  could  know  just  what  the  world 
thinks  concerning  grain  prices.  What  he  has  are  a  few  enormously 
wealthy  exporters  setting  their  own  price  upon  his  product. 

Argentina  will  never  be  a  great  agricultural  country  until  she 
emerges  from  the  chrysalis  of  monopoly  which  surrounds  her  grain 
trade.  If  the  American  farmer  desires  to  test  the  efficacy  of  our  own 
system  of  marketing  and  handling  grain  and  of  our  own  methods  of 
establishing  prices  for  grain,  let  him  proceed  to  study  the  Argentina 
system. 

I  returned  with  a  most  wholesome  respect  for  the  American 
farmer,  and  I  realize  as  never  before,  that  the  stability  of  this  coun- 
try depends  upon  the  prosperity  of  the  man  who  produces  its 
wealth  just  as  much  or  perhaps  more  than  the  man  who  consumes 
the  products  of  the  soil.  But  I  also  came  back  with  a  more  in- 
telligent regard  for  the  great  economic  system  which  prevails  in 
this  country,  which  enables  us  to  market  grain  at  a  minimum  of 
profit  between  the  man  who  produces  it  and  the  man  who  con- 
sumes it.  Pickell,  J.  Ralph,  Agricultural  Argentina,  pp.  58-59. 


APPENDIX  265 

APPENDIX  22 

Reference  Library  for  a  Board  of  Trade 

1.  Annual   Reports    of   all   organized   exchanges,   domestic   and 

foreign. 

2.  All   publications    (in   English)    of   International   Institute   of 

Agriculture,  Rome. 

3.  Daily  Consular  and  Trade  Reports,  Department  of  Commerce, 

Washington. 

4.  Yearbook,  IT.  S.  Department  of  Agriculture,  Washington. 

5.  U.  S.  Census  Reports  (Decennial  and  Special). 

6.  United   States   Industrial   Commission   Report,    19  Volumes, 

Washington. 

7.  United  States  Commission  on  Industrial  Relations   Report, 

Washington. 

8.  Report  of  Country  Life  Commission. 

9.  Current  Periodicals  dealing  with  the  grain  trade  and  allied 

interests,  such  as  hay,  seeds,  milling,  grain  elevators,  the 
country  shipper,  farmers'  elevators,  etc.  Including  Broom- 
hairs  Corn  Trade  News,  Liverpool.  Also  current  yearbook, 
Miller's  Almanacks,  Price  Current  Bulletins,  Market  Re- 
porters, etc.,  of  all  kinds  from  every  market  possible.  In 
particular,  a  complete  set  of  daily  price  bulletins  for  the  local 
market  should  be  on  file.  The  list  of  periodicals  should 
include  representative  farm  papers,  particularly  official 
organs  of  farmers'  organizations,  including  the  Grain  Growers' 
Guide  of  Winnipeg  and  the  Cooperative  Elevator  News  of 
Saskatchewan  (Regina). 

10.  Hearings,  Committee  Reports,  Congressional  Investigations, 

Interstate  Commerce  Commission  Hearings  and  Investiga- 
tions. All  federal  and  State  reports  involving  grain  exchange 
practices  and  the  grain  trade  in  general. 

11.  Proceedings  of  the  Grain  Dealers'  National  Association,  com- 

plete, Also  "Who's  Who  in  the  Grain  Trade." 


260  APPENDIX 

12.  Proceedings  of  the  various  State  Grain  Dealers'  Associations, 

including  the  Farmers'  Grain  Dealers  Associations,  complete. 

13.  Weighing,  Inspecting,  Grading.    Complete  Reports  from  each 

state  (or  each  Exchange  exercising  this  function)  of  the 
departments  having  charge  of  grain  weighing,  inspection  and 
grading. 

14.  Elevators  and  Warehouses.    Complete  reports  from  each  State 

Railroad  and  Warehouse  Commission  (or  other  similar  body 
with  jurisdiction)  covering  the  subject  of  warehousing  grain. 

15.  Bulletins  of  the  U.  S.  Department  of  Agriculture,  the  State 

Colleges  of  Agriculture,  the  State  and  Federal  Experiment 
Stations,  dealing  with  the  production  and  marketing  of  farm 
products.  The  Experiment  Station  Record  and  the  Monthly 
Crop  Reporter  should  also  be  included,  both  issued  by  the 
U.  S.  Department  of  Agriculture. 

16.  Canadian  Documents  on  the  Grain  Trade: 

(1)  Report  of  the  Royal  Commission  on  the  Grain  Trade  of 

Canada,  1906,  Ottawa. 

(2)  Report  of  the  Elevator  Commission  of  the  Province  of 

Saskatchewan,  1910,  Regina. 

(3)  The   Canada   Grain  Act   of   1912   with   Amendments. 

Ottawa. 

(4)  Grain  Inspection  in  Canada,  by  R.  Magill,  chief  com- 

missioner Board  of  Grain  Commissioners  of  Canada. 
Issued  by  the  Department  of  Trade  and  Commerce, 
Ottawa. 

(5)  Report  of  the  Grain  Markets  Commission  of  the  Province 

of  Saskatchewan,  1914,  Regina. 

(6)  Annual  Reports  Department  of  Trade  and  Commerce: 

Grain  Statistics,  Ottawa. 

17.  Progress  Reports  from  the  Royal  Commission  on  the  Marketing, 

Transportation  and  Storage  of  Grain.  Presented  to  the 
Parliament  of  Victoria,  Australia,  1913.  Melbourne. 

18.  Wheat  and  Flour  Prices  from  Farmer  to  Consumer.    Bulletin 

U.  S.  Bureau  of  Labor  Statistics,  No.  130.    Washington. 


APPENDIX  207 

Miscellaneous  Material 

Emery,  N.  C.,  Speculation  on  the  Stock  and  Produce  Exchanges  of 
the  United  States.  Published  by  Columbia  University, 
1896. 

Van  Antwerp,  W.  C.,  The  Stock  Exchange  from  Within,  1913.  Con- 
tains the  full  report  of  the  Governor  Hughes  Commission  on 
Speculation  in  Securities  and  Commodities. 

Brace,  H.  H.,  The  Value  of  Organized  Speculation,  1913. 

Smith,  Rollin  E.,  Wheat  Fields  and  Markets  of  the  World,  1908. 

Weld,  L.  D.  H.,  The  Marketing  of  Farm  Products,  1916. 

Huebner,  Grover,  Agricultural  Commerce,  1915. 

Piper,  C.  B.,  Principles  of  the  Grain  Trade  of  Western  Canada, 
1915. 

Usher,  A.  P.,  History  of  the  Grain  Trade  in  France,  1400-1700. 
1913. 

Gras,  N.  S.  B.,  The  Evolution  of  the  English  Corn  Market  from 
12th  to  18th  century. 

Lysias,  Speech  against  the  Grain  Dealers. 

Aristotle,  Constitutions  of  Athens. 

Worrall,  Th.  D.,  The  Grain  Trust  Exposed,  1905. 

American  Produce  Exchanges.  The  Annals  of  the  American 
Academy  of  Political  and  Social  Science,  September,  1911 
(Vol.  38,  No.  2). 

American  Economic  Review.  Vol.  5,  No.  1,  Supplement,  March, 
1915. 

Kirkland,  John,  Three  centuries  of  prices  of  wheat,  flour,  and  bread. 
War  prices  and  their  causes,  London,  by  the  author,  at  Na- 
tional Bakery  School,  Borough  Polytechnic  Institute.  London, 
1917. 

Perlmann,  Loms,  Die  bewegung  der  weizenpreisen  und  ihre  ur- 
sachen.  Miinchen  und  Leipzig,  1914. 

Rutter,  Wm.  Pickering,  Wheat  Growing  in  Canada,  the  United 
States  and  the  Argentina,  including  comparisons  with  other 
areas.  London,  1911, 


2(38  APPENDIX 

Bucknell,  Frank  W.,  Wheat  Production  and  Farm  Life  in  Argentina. 
Bulletin  No.  27,  Bureau  of  Statistics,  U.  S.  Department  of 
Agriculture,  1904. 

Pickell,  J.  Ralph,  Agricultural  Argentina.    Chicago,  n.  d. 

Schelle,  Gustave,  Turgot  et  le  pacte  de  famine,  Institut  de  France, 
Acad.  d.  sci.  mor.  et  polit.  Seances  et  travaux,  n.  s.  V,  74, 
pp.  189-217.  Paris,  1910. 

Shepherd,  Robert  P.,  Turgot  and  his  Six  Edicts.  In  Columbia 
University  Studies  in  History.  Economics  and  Public  Law. 
Vol.  18,  No.  2,  1903. 

Say,  L.,  Turgot,  1887. 

Schelle,  G.,  Turgot,  1909. 

Neymarck,  A.,  Turgot  et  ses  doctrines. 

Stephens,  W.  Walker,  Life  and  Writings  of  Turgot. 

Afanessieo,  G.,  Le  Commerce  des  Cergates  en  France,  1894. 

Bond,  G.,  Le  Pacte  de  Famine,  1889. 

Poncador,  Bruno  Heinrich.  Wesen  und  wirkung  der  agrarzolle. 
Jena,  1911. 

Johlinger,  Otto,  Die  praxis  des  getreidegeschaftes  an  der  Berliner 
Borse. 

Turowsky,  Leo,  Der  russische  getreide  export,  seine  entwickelung 
und  organization.  Stuttgard  und  Berlin,  1910. 

Das  getreide  im  weltverkehr.  Statistische  label len  iiber  produc- 
tion, handel,  consum,  und  preise/  Dritte  folge.  Zusammen- 
gestellt  im  auftrage  des  K.  K.  Ackerbauministeriums  durch 
die  K.  K.  statistische  zentralkommission.  Wien,  1909. 

Fridrichowicz,  Eugen,  Die  technik  des  internationalen  getreide- 
handels.  Berlin,  1908. 

Ruhland,  Gustav.  Die  Lehre  von  der  Preisbildung  fiir  getreide. 
Berlin,  1904. 

Young,  Arthur,  The  expediency  of  a  free  exportation  of  corn  at  this 
time,  with  some  observations  on  the  bounty  and  its  effects. 
London, 1770. 

Beandeau,  Nicolas.  A  vis  au  peuplesur  son  premier  besoin.  Amster- 
dam, 1774. 


APPENDIX  269 

Ricardo,  David,  On  Protection  to  Agriculture.    London,  1822. 
Roscher,  Wilhelm  Georg  Friedrich.    Ueber  kornhandel  und  theue- 

rungspolitik,  3d  Aufgabe.    Stuttgart  und  Tubingen,  1852. 
Sering,  Max,  Die  landwirtschaftliche  konkurrenz  Nordamerikas  in 

gegenwart  und  Zukunft.    Leipzig,  1887. 
Dittman,  Otto,  Die  getreide  preise  in  der  Stadt  Leipsic  im  XVII, 

XVIII  und  XIX  jahrhundert.    Ein  beitrag  zur  geschichte  der 

preisbewegung.    Leipzic,  1889. 
Fridrichowicz,    Eugen,    Die    getreidehandelspolitik    des    ancien 

regime.    Weimar,  1897. 
Gaudemet,  Eugene,  L.  abbe*  Galiani  et  la  question  du  commerce  des 

bles  a  la  fin  du  regne  de  Louis  XV.    Paris,  1899. 
Wildenfeld,  Kurt,  Die  organization  des  deutschen  getreidehandels 

und   die   getreidepreisbildung   im    19   jahrhundert.     Leipzic. 
Sseminov,   D.   P.,   Russlands  landwirtschaft  und  getreidehandel. 

Miinchen,  1901. 
Zaharia,  Al,  Der  rumanische  weizen,  Herrn  prof.  dr.  Th.  Kosutany 

zur  antwort  mit  einem  anhang  iiber  die  untersuchung  der 

ernten  der  jahre,  1900-1908.    Buccuresti,  1911. 
Zaharia,  Al,  Le  ble  roumain.     Recoltes  des  aimees,   1900-1908. 

Public  par  le  Minist&re  de  F  agriculture  et  des  domaines.    Buc- 

carest,  1910. 
Taylor,  Ch.  H.  (Editor),  History  of  the  Board  of  Trade  of  the  City 

of  Chicago.    3  Vols.,  Chicago,  1917. 


INDEX 


Acme  Malt  Co.,  220. 
Adams,  G.  W.,  64. 
"Adventurers,"    199. 
Amateurs,  27,  28. 
American  Linseed  Co.,  221. 
American    Maize    Products    Co., 

221. 

American  Malting  Co.,  221. 
Apples  and  future  trading,   158- 

160. 

Arbitration,    113. 
Arcadia  Farms  Milling  Co.,  221. 
Argentina,     grain    market,     142, 

211;  market  needed,  264. 
Aristotle,   quoted,    144. 
Armour  Grain  Co.,  217,  220. 
Atchison  Board  of  Trade,  10. 
Australia,  wheat  crop,  1917-1919, 

3. 

Bacon,  E.  R.,  221. 
Bade,  J.  S.  &  Co.,  217. 
Badenoch,  J.  J.  Co.,  221. 
Baker,  Wm.  T.,  Pres.,  93,  105, 

106. 

Bakeries  and  future  trading,  163. 
Barnes,  Julius  H.,  228. 
Bartlett  Frazier  Co.,  217. 
Beach  Wickham,  217. 
Bears,  24. 
Beer,  H.  &  B.,  217. 


Bennett,  James  E.  &  Co.,  217. 
Bright  Sears  &  Co.,  217. 
Brooks  Elevator  Co.,  221. 
Bryan,  Wm.  Jennings,  69. 
Bucketing  trades,  58,  230. 
Bucket  shop,  89;  fight  on,  89-96. 
Bulls,  24. 
Bulls  and   bears,   put   on   brake, 

142. 
Byrnes,  W.  J.  Co.,  221. 

Cairo  Board  of  Trade,  11. 

California  Fruit  Growers'  Ex- 
change, 33. 

Call  Rule,  51-52. 

Calumet  Malting  Co.,  221. 

Carpenter,  N.  L.  Co.,  217. 

Carrying  charge,  61. 

Cash  grain,  31,  46. 

Cash  grain  market,  133-142. 

Cash  grain,  relation  to  specula- 
tion, 115. 

Central  Elevator  Co.,   106,  220. 

Chicago  Board  of  Trade,  as  a 
grain  market,  1,  7,  8,  10,  22; 
flow  of  grain  to,  11;  competi- 
tion, 10-13,  16,  30,  181,  230; 
as  a  corporation,  14;  objects, 
14;  membership  classified,  15- 
16;  farmer  members,  17,  39; 
membership  qualifications,  18, 


271 


272 


INDEX 


38;  government  of,  18;  rules, 
18;  committees  of,  18-19; 
physical  equipment,  20;  use 
of  market  information,  20-21; 
one  day's  trading,  23-26;  "toll," 
29,  32;  volume  of  business,  29; 
hedging  and  speculation,  34; 
history,  37;  farmers'  elevator 
movement,  47-51 ;  rules  against 
corners,  74-78;  clearing  house 
systems,  78-88;  fight  on  bucket 
shops,  89-96;  market  news 
service,  96;  terminal  elevator, 
97-113;  railroad  relations, 
97-113;  arbitration  of  business 
disputes,  113;  speculation  ques- 
tion, 115-142;  wide  market, 
176-179;  government  super- 
vision, 203;  regulation  of  specu- 
lation, 205. 

Childs,  Kay  &  Woods,  217. 

Christie  case,  82-84,  95. 

Christie,  G.  I.,  119. 

Civic  Federation,  95. 

Clark,  Childs  &  Co.,  217. 

Clark,  John  F.  &  Co.,  217. 

Clearing  house,  Chicago  Board 
of  Trade,  78-85;  arguments  for 
and  against  Chicago  system, 
86-88. 

Cleveland  Telegraph  Co.,  94. 

Collective  bargaining,  201. 

Columbia  Malting  Co.,  221. 

Commission  merchant,  31. 

Competition  in   grain   trade,    11. 

Consumption,  wheat,  per  capita, 
213. 

Contract  grades,  75-77. 


Coordination,  lack  of,  in  grain 
production,  2-4. 

Corners,  57;  early,  62-67;  "Three 
Big,"  67-74;  Hutchinson,  68; 
Leiter,  69;  Patten,  71;  illegal 
under  Supreme  Court  decision, 
73;  prevention  of,  74-78;  and 
speculation,  126,  181;  artificial 
corner,  143;  relation  to  Board 
of  Trade,  143-151;  antedate 
Board  of  Trade,  143-150; 
Malaga  grapes,  237. 

Cost  of  production,  and  the 
farmer,  5. 

Crerar,  Hon.  Thomas,  17. 

Crossing  trades,  58. 

Daugherty,  C.  L.  &  Co.,  221. 

Delany,  F.  J.,  221. 

Denver  Grain  Exchange,  11. 

Des  Moines  Board  of  Trade,  11. 

Detroit  grain  market,   10. 

Dickinson,  A.,  Co.,  220. 

Direct  settlement,  80. 

Dockage,  238. 

Duluth  grain  market,    10. 

Dunn,  E.  G.,  47. 

Eckhardt,    B.    A.    Milling    Co., 

221. 

Eckhardt,  Wm.  G.,  153. 
Ellis,  W.  E.,  222. 
Ely,  F.  G.,  221. 
Emery,  H.  C.,  quoted,  39. 
Enid  Board  of  Trade,  11. 
Equity  Society,  167. 
Eschenburg  &  Dalton,  48,  50. 
Ewing,  F.  G.,  150. 


INDEX 


273 


Farmers'  elevators,  17,  39,  47-51, 
167-175;  Hartford,  S.  D.,  176. 

Feehery,  E.  J.  &  Co.,  217. 

Fleischrnan  Malting  Co.,  221. 

Flour  mills,  growth  of,  11. 

Forcing  grain  into  storage,    110. 

Forgan,  David  R.,  quoted,  58-59. 

Fort,  Charles  H.,  151. 

Fort  Worth  Grain  and  Cotton 
Exchange,  10. 

Future  trading,  defined,  23; 
origin,  51-58;  first  rules,  57; 
and  credit,  58;  influence  on 
price,  59;  delivery  months, 
62;  settling  contracts  by  off- 
sets, 82;  compare  credits,  231; 
margins,  85;  price  fluctuations, 
133-142,  215-217;  increasing 
use  of,  157;  apples,  158;  wal- 
nuts, 160;  prunes  and  apricots, 
162;  in  industries,  162;  pure 
foods,  163;  butter  and  eggs, 
163;  beans,  163;  bakeries,  163; 
off  the  Exchanges,  165;  gives 
certainty  and  stability,  166; 
regulation  of,  227;  restrictions, 
228. 

"Gadfly"  of  the  Board,  109. 

Gates,  John  W.,  67. 

German  law  on  speculation,  182- 

196. 

Germany,  rye  bread,  3. 
Gladstone,  Wm.  E.,  198. 
Goodman  crop  reports,  96. 
Goodrich,  P.  E.,  176. 
Grading,  39,  41,  43,  44,  99,  103, 

238. 


Grain  Growers'  Export  Company, 

17. 
Grain   marketing,    an    important 

question,    1;    an    internal  ionrU 

question,  20&-211. 

Hales  &  Edwards,  221. 

Halle  &  Stieglitz,  217. 

Harper  deal,  65-66. 

Harris  Winthrop  &  Co.,  217. 

Harvest,  209-210. 

Harvey  Grain  Co.,  221. 

Hateley  Bros.,  50. 

Hay  trade,  speculative,   175. 

Hedging,  24,  34;  and  banking,  59; 
insurance  and  speculation,  166, 
176;  Equity  Society  on,  167; 
in  Winnipeg,  171-175;  lacking 
in  hay,  175;  wide  market 
needed,  177-178. 

Heinz,  H.  J.,  163. 

Henebry,  Joseph  A.,  17. 

Henjum,  Iver  S.,  176. 

Hill,  John,  Jr.,  143. 

Hirst  &  Begley  Linseed  Co.,  221. 

Hoit,   Lowell  &  Co.,  48-49,   50. 

Hoover,  Herbert,  and  hog  prices,4. 

Hospital  elevators,  112. 

Housman,  A.  A.  &  Co.,  217. 

Houston  Grain  and  Hay  Ex- 
change, 11. 

Hughes,  Charles  E.,  116. 

Hughes  &  Dier,  217. 

Hulburd,  Warren  &  Chandler, 
217. 

Hutchinson,  B.  P.,  68. 

Hutchinson,  Board  of  Trade,  11. 

Hutton,  E.  F.,  217. 


274 


INDEX 


Ideal  market,  1. 

Illinois  Agricultural  Society,  152. 

Illinois  Grain  Dealers'  Associa- 
tion, 49. 

Illinois  Railroad  and  Warehouse 
Commission,  103. 

Indianapolis  Board  of  Trade,  10. 

Inglis  crop  reports,  96. 

Inspection,  39,  41,  43,  44,  99,  103, 
238. 

Insurance,  166. 

> Jackson  Bros.  &  Co.,  217. 
f    Jenks,  Gwynne  &  Co.,  217. 

Kansas  City,  grain  market,  10. 
Keelen  Bros.,  221. 
Keene,  Mr.,  65. 
>Kehoe,  Mrs.  Kate  A.,  testimony 

of,  46-47. 

/Kershaw  failure,  65-66. 
/  King,  Farnum  &  Co.,  217. 

>Laidlaw  &  Co.,  218. 
Lamson  Bros.  &  Co.,  218,  238. 
Larsen  &  White,  236. 
Leiter,  Joseph,  69. 
Lewis,  Charles  E.  &  Co.,  218. 
Lipper,  Arthur,  218. 
Liquidated,  25. 

Little  Rock  Board  of  Trade,  10. 
Livestock  feeding,  11. 
Logan  &  Bryan,  218. 
Longs,  24. 

Louisville  Board  of  Trade,  10. 
Lowitz,  E.  &  Co.,  218. 

Manipulation,  152,  157. 
Marble,     Mr.,     Interstate    Com- 
merce Commission,  46-47. 


Margins,  26,  85-86. 

Market,  fundamental  function  of, 
3. 

Market   information,    132-142. 

Market  news,  96;  restrictions, 
225,  226. 

Marshall,  Frank,  221. 

Martineau,  Harriet,  118. 

Mason,  Frank  H.,  Consul  Gen- 
eral, 196. 

Matching  trades,  58. 

Mauff,  John  R.,  Secy.,  225,  226, 
227,  228,  229. 

McAvoy  Brewing  Co.,  221. 

McCafferty,  Vice  Consul  W.  J., 
quoted,  3. 

McDonnell  &  Co.,  218. 

McKay,  Prof.  G.  L.,  236. 

McKenna  &  Rodgers,  221. 

Mealiff,  F.  H.  &  Son,  221. 

Memphis  Merchants'  Exchange, 
11. 

Merrill,  J.  C.  F.,  Secy.,  89. 

Meyer,  Prof.  Martin  H.,  236. 

Michaels,  Chas.  D.,  133,  134, 
155. 

Michels,  Prof.  John,  236. 

Miller  &  Co.,  218. 

Milwaukee  Gram  Market,  10. 

Mincer,  S.,  218. 

Minneapolis,  grain  market,  10. 

Mixing,  111-112;  applied  to  but- 
ter, 235. 

Monopoly,  46. 

Mowry,  H.  C.,  49. 

Mueller  &  Young,  221. 

Munn,  Ira  Y.,  104. 

Munn  versus  Illinois,  103. 


INDEX 


275 


Munn  versus  Scott  Elevator  Co., 

104. 
Muth,  Julius,  Consul,  187. 

Niles'   Weekly  Register,   quoted, 

145-150,  157. 
Norris  &  Co.,  221. 
Northwestern  Yeast  Co.,  221. 
Nye-Jenks    Grain    Co.,    222. 

Omaha  Grain  Exchange,  47. 
Omaha,  grain  market,  10. 
Option    trading,    88,    89;    differs 

from  future  trading,  88. 
Orthwein-Matchette   Co.,    218. 
Otis  &  Co.,  218. 
Overbought,  25. 
Oversold,  25. 

Patten,  James,  71. 

Peck,  Prof.  C.  L.,  236. 

Peoria,  grain  market,  10. 

"Phantom  wheat"  question,  125. 

Pickell,  J.  Ralph,  264. 

Pillsbury,  Mr.,  176. 

Pit  scalper,  17,  24,  28,  20i. 

Plainfield  Grain  Company,  17. 

Post  &  Flagg,  218. 

Postal  Telegraph  Co.,  94. 

Price,   function  of  a  market,   4; 

fair  price  and  equilibrium  price, 

6;    price    fixing    question,     6; 

fluctuations    and    supply    and 

demand,  8-9;  cash  and  future, 

59-62. 
Price  fluctuation,  "horse  disease," 

222. 
Price   and   speculation.    117-125, 

179,  180. 


Private  wires,  17,  217. 
Publow,  Prof.  Chas.  A.,  236. 
Pynchon  &  Co.,  218. 

Quaker  Oats  Co.,  221. 

Railroads,  27,  42,  45;  terminal 
elevator  monopoly,  97. 

Randolph,  Charles,  Secy.,  64. 

Randolph,  E.  C.,  218. 

Range,  T.  &  Sons,  221. 

Rings,  80;  six  name  ring,  80. 

Robbins,  H.  S.,  Attorney,  90. 

Rosenbaum  Bros.,  221. 

Rosenbaum,  J.,  Grain  Co.,  218, 
220. 

Rumble  &  Co.,  92. 

Rumsey,  Julian  S.,  43. 

Russia,  rye  bread,  3. 

Rye  bread,  in  Germany  and 
Russia,  3. 

Sager,  Hiram,  43,  110. 
Salina,  Board  of  Trade,  11. 
Saskatchewan    Cooperative    Ele- 
vator News,  quoted,  171. 
Sawers  Grain  Co.,  218. 
Scalping,  27. 
Schwill,  A.  &  Co.,  222. 
Sconce,  H.  J.,  153. 
Scott,  Walter,  198. 
Seipp  Brewing  Co.,  222. 
Shaffer  &  Stream,  218. 
Shearson  Hammill  Co.,  218. 
Short  selling,  24,  55-57,  157. 
Simons  Day  &  Co.,  218. 
Sioux  City  Grain  Exchange,   11. 
Smith,  Gaston,  Consul,  237. 


276 


INDEX 


Snow  crop  reports,  96. 

South  Chicago  Elevator  Co.,  220. 

Speculation,  115;  definition,  116; 
cash  and  futures,  117-120; 
land,  118-119;  organized  and 
unorganized,  119;  price  fluc- 
tuations, 120-142;  wheat,  bar- 
ley, and  oats  prices,  122-123; 
wheat  for  100  years,  123-124; 
" phantom  wheat,"  125;  hedg- 
ing and  insurance,  166;  wide 
market  question,  177;  benefits 
of,  179;  stablize  price,  179; 
continuous  market,  180;  as- 
sumption of  risks,  180;  enemy 
of  monopoly,  181;  stability 
of  values,  182;  prohibition  of, 
182;  Germany's  experience, 
182;  a  social  question,  196; 
farmers,  197;  evils  of,  200; 
good  and  bad  speculation, 
200;  constructive  reforms,  201; 
Grain  Corporation,  202;  edu- 
cation, 202;  Government  ac- 
tion, 203;  Board  of  Trade  ac- 
tion, 205;  summary  on,  207. 

Standard  Brewing  Co.,  222. 

Star  &  Crescent  Milling  Co., 
222. 

Statistics — wheat  production  and 
prices,  211-212;  flour  mills, 
215;  future  and  cash  prices, 
215-217;  wheat  prices  for  100 
years,  219;  corn  prices,  223-224. 

Stewart,  Prof.  Henry,  236. 

St.  Joseph  Grain  Exchange,  10. 

St.  Louis,  grain  market,  10. 

Stocking,  Prof.  Wm.  A.,  236. 


Strandberg,  McGreevy  &  Co., 
218. 

Stream,  J.  J.,  227. 

Sturges,  W.  N.,  64. 

Sullivan,  Mark,  quoted,  4. 

Superior  (Nebraska)  Board  of 
Trade,  11. 

Superior  (Nebraska)  Corn  Prod- 
ucts Co.,  117. 

Supply  and  demand,  fluctu- 
ating, 2. 

Supply  and  demand,  and  price, 
8,  61;  market  information  on, 
20-21,  125-127,  price  making, 
180;  price  fluctuations,  209- 
210,  212;  Kansas  wheat,  232. 

Taylor  &  Bournique,  222. 

Taylor,  Chas.  H.,  quoted,  45. 

Terminal  Elevators,  27,  44,  45, 
220;  to  arrive  grain,  52-53; 
speculation,  59;  regular,  77; 
public  and  private,  99;  class  A, 
104,  105;  relation  to  Board  of 
Trade*,  97-113;  Illinois  Con- 
stitution of  1870,  101;  law  of 
1871,  103;  Judge  Tuley's  de- 
cision, 106. 

Terry,  F.  M.,  49. 

Thompson,  D.  O.,  153. 

Thompson  &  McKinnon,  218. 

To  arrive,  169,  179;  grain,  23, 
51-53. 

Tobacco  marketing,  150-151. 

Toledo,  grain  market,  10. 

Topeka  Board  of  Trade,  11. 

Trade  documents,  33,  238. 

Trans-Mississippi  Grain  Co.,  218. 


INDEX 


277 


Tuley,   Judge,   decision  in  ware- 
house case,  106. 
Twain,  Mark,  198. 

U.  S.  Brewing  Co.,  222. 

United  States  Food  Adminis- 
tration, 207. 

United  States  Grain  Corporation, 
202. 

Updike  Grain  Co.,  218. 

Van  Ness,  Gardner  B.  Co.,  218. 
Vehon,  M.  L.  Co.,  218. 

Wagner,  E.  W.  &  Co,  218. 
Wanamaker,  John,  162. 


Ware  &  Leland,  218. 
Warren,  Wm.  S,  Pres,  94. 
Washington,  Geo,  199. 
Weighing,  39,  40,  45,  238. 
Wells,      Geo.     A.,      Secy,      49, 

50. 
Western    Union    Telegraph    Co, 

92-94. 

Wheat  marketing,  Kansas,  232. 
Wide  market,  176. 
Winnipeg   Grain   Exchange,    171, 

177. 

Wire  houses,  217. 
Wright,  Joseph,  99. 


Printed  in  the  United  States  of  America. 


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